Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Wednesday, July 24, 2013

Using Rule 506 in Going Public Transactions

Going Public l Securities Lawyer 101
Private companies going public often file a registration statement  with theSecurities and exchange Commission (“SEC”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”), as part of their going public transaction.  In a registered offering, the private company files a registration statement with the SEC, typically on Form S-1 registering securities it plans to sell or securities held by its shareholders (“Selling Shareholders”).
Using Rule 506 in Going Public Transactions
Recent changes to Rule 506 of Regulation D will fast track the going public process for many issuers by allowing them to obtain their initial shareholders using general solicitation and advertising if certain requirements are met.  This will enable issuers to satisfy FINRA‘s requirements for a ticker symbol assignment sooner.  Generally, FINRA requires that companies going public have sufficient shareholders to establish an active trading market in their shares.  While there is no set number of shareholders, most issuers have at least 25 shareholders when they file their Form 211  with FINRA seeking a ticker symbol.  Obtaining these initial shareholders is often difficult for issuers.  The use of general solicitation and/or to locate these investors will make it much easier for some issuers.
Going Public l Rule 506 l Form S-1 Registration Statements
Once a company has its shareholders using a 506 offering, a registration statement on Form S-1 is typically filed. Private companies going public can file a registration statement registering their own securities in a direct public offering or an initial public offering (“IPO”). Under either, the issuer can use Form S-1. Securities sold in a direct public offering are sold directly by the private company going public and the securities sold in an IPO are sold by an underwriter who is typically a registered broker dealer.
Another method for a private company to go public using a registration statement is by registering shares on behalf of its existing shareholders.  With a selling shareholder registration statement, the issuer sells its securities to investors usually relying upon either a Regulation D offering, then subsequently files a registration statement to cover the resale of those shares.
SEC Review of Form S-1 Registration Statements
The SEC reviews and often comments on the disclosures provided in the S-1 registration statement. Upon confirmation that the SEC is satisfied that the disclosures satisfy the disclosure requirements of the securities laws, it will declare the registration statement effective and the securities may be sold.
When a company goes public using a registration statement, the SEC does not comment on, nor does it have the authority to deny effectiveness of a registration statement based upon the private company’s business or operations, potential success or its offering.
Effectiveness of the Registration Statement l SEC’s Reporting Obligations
A private company going public by filing a registration statement with the SEC becomes subject to the SEC’s reporting requirements under the Securities Exchange Act of 1934. Upon effectiveness of the registration statement, the company must file periodic reports that include current event reports on Form 8-K, quarterly reports on Form 10-Q and annual reports on Form 10-K. The Form 10-K must include financial statements audited by an auditor registered by the PCAOB, and the 10-Q financials must be reviewed by a PCAOB registered auditor.
FINRA Form 211 l Going Public Transactions
Once a Registration Statement is declared effective by the SEC, the private company must locate a sponsoring market maker to file the information required by SEC Rule 15c2-11. Like the SEC, FINRA reviews the 15c2-11 information.  Once FINRA is satisfied that sufficient information has been provided and due diligence has been undertaken by the sponsoring market submitting the 15c2-11 information, it will assign a trading symbol to the private company and its going public transaction is complete.
Securities lawyer, Brenda Hamilton provides legal advice to private companies and public companies in securities matters including registration statements, reverse merger due diligence and going public transactions involving Form S-1, S-4 and S-8.

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

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