OTC Business Solutions Going Public

Should My Company “Go Public”?

How does my small business register a Public Offering?

If you decide on a registered public offering, the Securities Act requires your company to file a registration statement with the SEC before the company can offer its securities for sale. You cannot actually sell the securities covered by the registration statement until the SEC staff declares it "effective," even though registration statements become public immediately upon filing.

Registration statements have two principal parts:

Part I is the prospectus, the legal offering or "selling" document. Your company - the "issuer" of the securities - must describe in the prospectus the important facts about its business operations, financial condition, and management. Everyone who buys the new issue, as well as anyone who is made an offer to purchase the securities, must have access to the prospectus.

Part II contains additional information that the company does not have to deliver to investors. Anyone can see this information by requesting it from one of the SEC's public reference rooms or by looking it up on the SEC Web site.

The Basic Registration Form - Form S-1

All companies can use Form S-1 to register their securities offerings. You should not prepare a registration statement as a fill-in-the-blank form, like a tax return. It should be similar to a brochure, providing readable information. If you file this form, your company must describe each of the following in the prospectus: its business; its properties; its competition; the identity of its officers and directors and their compensation; material transactions between the company and its officers and directors; material legal proceedings involving the company or its officers and directors; the plan for distributing the securities; and the intended use of the proceeds of the offering. Information about how to describe these items is set out in SEC rules. Registration statements also must include financial statements audited by an independent certified public accountant.

In addition to the information expressly required by the form, your company must also provide any other information that is necessary to make your disclosure complete and not misleading. You also must clearly describe any risks prominently in the prospectus, usually at the beginning. Examples of these risk factors are:

lack of business operating history; adverse economic conditions in a particular industry; lack of a market for the securities offered; and dependence upon key personnel. Alternative Registration Forms for Small Business Issuers; If your company qualifies as a "small business issuer," it can choose to file its registration statement using one of the simplified small business forms. A small business issuer is a United States or Canadian issuer: that had less than $25 million in revenues in its last fiscal year, and whose outstanding publicly held stock is worth no more than $25 million.

Staff Review of Registration Statements

SEC staff examines registration statements for compliance with disclosure requirements. If a filing appears incomplete or inaccurate, the staff usually informs the company by letter. The company may file correcting or clarifying amendments. Once the company has satisfied the disclosure requirements, the staff declares the registration statement effective. The company may then begin to sell its securities. The SEC can refuse or suspend the effectiveness of any registration statement if it concludes that the document is misleading, inaccurate, or incomplete.

Preparation for a Reverse Merger or Public Shell Merger

Locate a Suitable Public Shell- Public shells can often be found by consulting with securities law firms or CPA - Audit firms that deal with public companies.
It is important to start with a clean shell- Due diligence on the public shell cannot be over emphasized, advice from your securities counsel, auditors, and a financial consultant should be utilized. As was mentioned, many shells are created for the express purpose of merging with a private company. These shells have no predecessor entities, and, as a result, little baggage in the way of a business failure or other skeletons in the closets.
Comprehensive Business Plan- Potential investors, public shareholders, auditors, securities counsel, brokers and market makers will want to see a well documented business plan.
Strong Management Team- Public investors demand strong management teams.
Convincing Marketing Plan- Public companies need the ability to show good sales and earning growth.
Product or Service- Public companies should be able to develop strong or dominant position in their business segment.
Financial Audits- SEC qualified audited financial statements for your last two fiscal years.
Experienced Securities Counsel - Your attorney must be qualified to deal with regulatory compliance, and the ongoing reporting requirements of all public companies.
Have Public Company Experience- Your company should have at least one person in senior management that has significant public company experience. A made-to-order shell without the baggage of a business failure in its background can sometimes be the way to go, but there's often a cost involved. You will most likely end up with the financing consultants as minority shareholders in the new company, holding between 2 percent and 5 percent. However, in almost any reverse merger transaction, the principals of the shell company keep a small equity position in the company going forward. Therefore, this surrender of equity is simply a cost of doing business.
Devise your financing strategy- A reverse merger is an indirect route to raising capital. Entrepreneurs must first consider how additional capital will be raised after the deal is done.

Requirements Necessary to Close a Reverse Merger or Public Shell Merger

Business plan of merger partner. Sufficient information to complete and file the required 8-K with the SEC
Management information, including completion of the “Officer and Director Questionnaire,” for all Officers and Directors designated by the private company merger partner.
Agreement on structure and terms of merger.
Letter of intent with escrow payment made to public company or its principal shareholders. (This must happen for the public company to cease negotiations with other merger prospects.)
Audited Financial Statement, conformed to US, GAAP for the private merger partner. The audit statements of the private company have to be consolidated with the public company's financial statements.
Agreed merger fee in escrow with the securities attorney representing the merger partner.
Consent from the majority, preferably 100%, of existing shareholders of the private company to merge or exchange their shares for shares of the public company.
Agreement for the Officers and Directors of the public shell to be replaced with the Officers and directors designated by the private company merger partner.
List of all shareholders in the private company that will make the share exchange.
Post Merger Structure. Number of shares to be outstanding “post merger”, and a complete breakdown of share ownership post merger. Note: It is often necessary for the public shell to do a reverse split and/or cancel shares owned by the affiliates of the public share prior to completing the merger.
Domicile Agreement. Agreement on state the company will be domiciled in post merger.
Satisfaction of warranties and representations between public shell and merger partner.
SEC counsel and auditors. Designation of securities attorneys and SEC qualified auditors that will represent the private merger partner.
Agreement Preparations of the share exchange agreement, stock purchase agreement, definitive merger agreement, and all other documents necessary to complete the merger.
Final preparation of the 8K that is required to be filed with the SEC within 4 days of closing the merger. Please note: The 8-K must disclose the same type of information that it would be required to provide in registering a class of securities under the Securities Exchange Act of 1934.(See Sec Final Rule33-8587, pdf file)

Filing a Form 211 to Receive a Trading Symbol

Rule 15c211 was designed to allow non-reporting public company's securities to be quoted on the National Association of Securities Dealers'(“NASD”) Over-the-counter Bulletin Board (“OTCBB”) by filing some simple disclosures.

Now, companies seeking to obtain a quote on the NASD OTC/BB are required to file reports with the Securities and Exchange Commission (“SEC”), under Section 15D of the Securities Exchange Act of 1933 (the “Act”), as amended, or section 12G of the 1934 SEC Act. A company who has filed a registration statement with the SEC using an SB-1, SB-2, or Form 10, will become a reporting company when the SEC declares the registration statement effective. Once the company is reporting, it is eligible to have a market maker file a Form 211 with the NASD. The 211 must be approved by the NASD, which normally takes 3 to 6 months, before the company can trade its stock on the OTC/BB. The NASD will require 40 to 50 shareholders and sufficient public float to approve the 211 application.