GOING PUBLIC – BACKGROUND TO REGISTRATION STATEMENTS FILED WITH THE SEC.

GOING PUBLIC – BACKGROUND TO REGISTRATION STATEMENTS FILED WITH THE SEC.

Before a company can go public by selling shares, the offering, also known as an initial public offering (IPO)  has to be registered with the Securities and Exchange Commission (the SEC for short). The basic process has been in place since 1933, with very few changes. As the law is written, the Registration Statement must be filed before offers or sales can be made, but sales could take place immediately upon filing.  However, the SEC immediately  implemented rules that require potential issuers to delay effectiveness of the registration statement until the review is completed.

The general form for registration for an IPO is called Form S-1. Real estate issuers, such as REITS,  use Form S-11. The process for S-1s and S-11s are similar. The forms are referred to as “general guides” and the instructions to each form provide lists of the various information required to be set forth in the Registration Statement. For example, a company wishing to register shares and go public must provide 2 or 3 years of audited financial statements.

The review is carried out at the Washington DC office of the SEC by the Division of Corporation Finance. The Division has 11 Assistant Director offices, broken down by industry. For example, AD 1 is Heathcare and Insurance. The 11 offices are all located in the same building, but review registration statements for IPOs separately. Each office develops a level of expertise in the particular industries assigned to it.

S-1s must be filed electronically using the SEC’s EDGAR system, together with the payment of the required fee. If the company has never effected an IPO, the registration statement is assigned to the appropriate AD based on the SIC (Standard Industrial Classification ) code set forth on the first page (called the facing page) of the S-1.

That AD office then evaluates its current workload and assigns the S-1 to a review team, composed of a few staff attorneys and accountants. If workload is heavy, the AD director may decide not to review an S-1, in which case the company is advised and the S-1 and the IPO can go effective immediately. On the other hand, if an S-1 is materially deficient, the staff can decline to review it. This typically only happens when the required financial statements are not furnished.