Page 51 - Initial Public Offering - An Introduction to IPO on Wall Street

Due to the potential limited usage of net operating losses by a business, tax planning — with
respect to the maximum use of net operating losses — should take place well ahead of the
public offering.

Another important part of the tax planning for IPO readiness is planning for compliance with
local and State tax laws.

Many states have tax legislation that could impact the businesses based there, as well as the
shareholders of such businesses. While listing all tax planning prospects is impossible due to
differences in state tax laws, if appropriate planning is performed before the IPO, there are
often substantial tax savings possibilities that can minimize the taxes of the business or
individual shareholders.

4.3.5 Executive Compensation and Human Resource

As part of the IPO readiness evaluation, organizations must assess their executive
compensation programs.

Securities filings related to IPO mandate that businesses make substantial qualitative and
quantitative disclosures regarding benefit packages for directors and executives.

These disclosures are often used by shareholders to understand the management capabilities,
organizational governance, value-creation strategy, and risk profile. Businesses pondering a
public offering should evaluate their compensation programs for directors and executives to
ensure they are meeting their goals.

It is critical that these compensation programs support the strategy of the company. These
benefits packages exist to recruit, inspire, and maintain staff efficiently for the implementation
of corporate strategy. A primary goal is to increase the shareholder value for public
corporations.

The incentive package should thus be consistent with the strategy of the business, accurately
convey the performance metrics that generate value, and share with employees a part of the
revenue generated.

When it comes to creating compensation plans, creating a long-term benefits package is
crucial to preserving the motivation of the management and workers.

Today, almost immediately after their formation, several organizations develop such programs
for the benefit of employees and management. Plans to issue equity securities (including
warrants and options) must be thoroughly reviewed within two years of an IPO. Often,
businesses should consider setting up employee stock ownership plans (ESOPs) at the same
time as a public offering.

The business would be forced to publicly report levels of compensation for executives and
directors — in several cases for the first time.

Registration statements and yearly proxy filings include a comprehensive documentation of
basic compensation, periodic cash bonuses, perquisites and privileges, stock option
allocations and all other long-term rewards.

Relevant details is needed for the CFO, the CEO, the three most paid executive officers other
than the CEO and CFO who worked at the end of the financial year and two other persons for

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