CONCENTRATION CAN BE BAD

Once you have completed your IPO, and raised funds from your investors, it is time to get your shares listed for trading on the over-the-counter market. This is going to require the assistance of a licensed brokerage firm. The firm is going to need a lot of documentation to file with the The Financial Regulatory Authority (FINRA), the self-regulatory agency that is in charge of the over-the-counter market.

One of the things FINRA is concerned about is that some devious person might try to control the trading market for your stock. In FINRA’s view, this could happen if ownership of the shares purchased in your IPO are concentrated in only a few hands.

Generally speaking, if you have 30 or 40 investors who all own similar amounts of shares, and no small group of investors dominating your list of public shareholders, FINRA will be satisfied and your stock will be permitted to trade. Otherwise, your big investors might have to agree to lock up part of their share ownership.

A merger into a public shell company eliminates this problem. In another blog post we will go over the advantages and disadvantages of an IPO versus reverse merger transaction.