When your company needs additional capital, "going public" may be the right choice, but you should weigh your options carefully. If your company is in the very early stages of development, it may be better to seek loans from financial institutions or the Small Business Administration. Other alternatives include raising money by selling securities in transactions that are exempt from the registration process.
All public offerings must be registered with the Securities and Exchange Commission (SEC). There are benefits and new obligations that come from raising capital through a public offering.
Benefits:
- Your access to capital will increase, since you can contact more potential investors.
- Your company may become more widely known.
- You may obtain financing more easily in the future if investor interest in your company grows enough to sustain a secondary trading market in your securities.
- Controlling shareholders, such as the company's officers or directors, may have a ready market for their shares, which means that they can more easily sell their interests at retirement, for diversification, or for some other reason.
- Your company may be able to attract and retain more highly qualified personnel if it can offer stock options, bonuses, or other incentives with a known market value.
- The image of your company may be improved.
Obligations:
- You must continue to keep shareholders informed about the company's business operations, financial condition, and management, incurring additional costs and new legal obligations.
- You may be liable if you do not fulfill these new legal obligations.
- You may lose some flexibility in managing your company's affairs, particularly when shareholders must approve your actions.
- Your public offering will take time and money to accomplish.
While the benefits are attractive, be sure you are ready to assume these new obligations.
Going public can be handled in a number of ways:
Initial Public Offering (IPO): Registration of stock with the Securities and Exchange Commission in order to sell equity ownership to the public.
Small Corporate Offering Registration (SCOR): A low-cost, low-hassle alternative to filing a traditional IPO. Up to $1 million in equity capital can be raised through over the counter sale of common stock.
Angel Capital Electronic Network (ACE-Net): The Office of Advocacy of SBA has established an Internet site where small companies may list their Regulation A and Regulation D 504/SCOR stock offerings. ACE-Net is a cooperative effort between the SBA and nine universities, state-based entities, and other non-profit organizations to provide a listing service where small companies may list their stock offering for review by high net worth investors (accredited investors).
