Page 40 - Initial Public Offering - An Introduction to IPO on Wall Street

4. Requirements

For many businesses, "Going public" is
a far bigger thing than merely selling
stock. It is a way of showing the world
that the company is now well
established and financially sound.

That's why conducting an initial public
offering (frequently referred as an IPO)
— the first selling of stock by a private
corporation to the market — has long
been the ultimate aim for many new
entrepreneurs that enter the business
world.

An IPO not only allows business
owners and shareholders to generate
more capital for company growth and
stability, but it also provides them with
an unofficial seal of approval for the
stock market.

However, new regulations, such as the 2002 Sarbanes-Oxley Act (SOX), have made people
think about IPOs a little differently than previously. It’s no longer just about getting listed to
sell stocks to the public and generate capital; you also need to consider how to successfully
navigate an incredibly grueling and extremely costly process.

In order to reap the benefits of increasing capital and attaining greater liquidity offered by an
IPO, businesses need to be more firmly developed and better able to meet stricter regulatory
standards than in the past.
Some of the decisions that you will need to make at the outset will have a major impact on how
your IPO process goes. These decisions include the selection of:

 Auditors
 Law firm (s)
 Investment banks that will serve as underwriters

The quality of the team that you create will greatly influence the other steps in the process and,
possibly, your IPO’s success. So, make sure you get the initial decision around IPO spot on.

In addition to the above, you need to keep in mind that for any company, the preparation,
implementation, and management of an IPO is a risky endeavor. The more a business is
prepared for an IPO, the more effective and the less expensive the procedure will be.

While the preparation process for an IPO can begin on the day a company is formed, or as late
as weeks before a public offering, I would suggest that a systematic plan be implemented over
a period of two years. This duration offers time for a private corporation to create capacity to
think, act and operate as a public company.
Depending on the sophistication of the current processes in an organization, the planning
process can often be extensive. Before going public, it's important that the organization
identifies and addresses any holes. The extent of the changes necessary would dictate the

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