A private or public company can raise capital in a variety of ways. Traditional sources of capital for companies include loans from financial institutions such as a bank, or from friends and family as well as receivable financing. Companies can also raise capital in going public transactions by selling their securities prior to filing an SEC registration. Going public is a milestone for any company and there are both advantages and disadvantages that attach to public company status. Companies going public do so because of the general perception that their new status will make it easier to raise capital.
If a private or public company is offering and selling securities, even if to only one person, the offer and sale of the securities must either be registered with the Securities and Exchange Commission (“SEC”) or must qualify for an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”).
Advantages of Public Company Status
There are numerous advantages of public company status including:
♦ Going Public potentially increases the opportunities to raise capital;
♦ To increase liquidity for the private company’s stock, which may allow the owners and employees who receive stock through an employee benefits program to sell their stock more easily;
♦ To acquire other businesses with the private company’s stock once its securities are publicly traded;
♦ To attract and compensate management and other employees with public company stock and stock-option compensation; and
♦ To create brand awareness, publicity and prestige for the private company.
Raising Capital by Selling Stock
Before deciding to go public to raise capital, private companies should consider many factors including:
♦ The cost of a public offering and time needed to become publicly traded;
♦ Increased liabilities resulting from public disclosures and obligations arising from public company status;
♦ Private companies may lose some flexibility in managing company matters because public company shareholders must approve certain corporate actions; and
♦ Information about the company, such as financial statements and disclosures about material contracts, customers and suppliers, will become publicly available to competitors.
This informational memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers Brenda Hamilton, Securities Attorney 101 Plaza Real South, Suite 201 South Boca Raton, Florida 33432 Telephone: (561) 416-8956 Facsimile: (561) 416-2855 www.SecuritiesLawyer101.com