The Legal Process of Ipo

In order to issue public securities offerings, the issuing corporation has to prepare preliminary prospectus at first to complete the Form S-1, which is the required securities registration statement, and then submit these file to U.S Securities and Exchange Commission (SEC). Within the preliminary prospectus, the corporation is required to provide written document to declare its current performance, including existing offerings, shareholders, historical financial situations, and risk evaluations, so that facilitating investors to make advisable decisions on their securities investment. Sometimes the preliminary prospectus is also called the “red herring” prospectus the information in the document is incomplete and free to revise. Without the approval of issuance from SEC after the registration statement (Form S-1) filed with it, the issuing corporation and stockholders cannot sell or buy in these securities in any places in the U.S. After the SEC receive the submission of statement, its Division of Corporate Finance checked the clarity, credibility and adequateness of the information and then implement the S-1/A, which is the amendment to the Form S-1, commenting on the registration statement that the company hands out. The period between the issuing corporation’s initial submission of registration statement and the SEC staff’s final claim of the statement’s effectiveness is referred to “waiting period”, playing a role of protecting investors from aggressive promotion of offerings through limiting to release information on the statement. Investors who are interested in participating securities transaction cannot place orders in accordance with the preliminary prospects and the investment banks cannot manage securities transaction until the SEC has passed the registration statement and the final prospects that the information delivered to investors has already clearly embodies offering prices and detailed declaration of offerings.

The legal process of IPO is lengthy because it assists the company to better identify its pros and cons prepare a comprehensive business plan when a company seeks to sell its shares to the public to raise money for the first time, expanding its revenue or paying its debt. Because nobody can forecast the market future path, whether the stock will be profitable or not, investing in an IPO is a risky step for both investors, who should reduce the probability of loss as much as possible, and issuing company whose interests generated from the stock market can be a signal and evaluation of its potential growth path to the top talent in the same industry. Moreover, for the issuing company, a boost of interest earned from public offerings can also improve its employee’s pride. Although the legal process of IPO is length, it plays role of facilitating issuing company to establish a clear understanding of its performance and financial situation by thinking carefully about how much money the company wants to raise, what types of securities will be issued, how the deal will be structured. Moreover, the preparing process also provide the issuing company a “chance” to declare and directly confront the legal problems faced by itself or other company, assisting it to upgrade its internal management. The “quiet period” and final prospectus helps the issuing company to come out an advisable stock price according to the company’s management and financial situation so that lowering the risk of loss for investors and the issuing company. Therefore, the reason that the legal process of IPO is lengthy is that giving the issuing company enough “room” to closely weight both the pros and cons closely before the company makes a decision.  

...