What is a Direct Public Offering, Overview and Process


What is a Direct Public Offering?

A ‘Direct Public Offering’ is a solution for those private companies who are struggling to obtain an underwriter whilst in the process of making their company public. A direct public offering will allow a company to start selling its shares without the need for an underwriter to be in place. In order to start the Direct Public Offering process, a company will need to file a registration statement. They will do this with the Securities and Exchange Commission.

The form a company will need to fill in when they go public is known as Form S-1. This form is a registration statement which will allow a company to register its own securities before their initial public offering.

Starting the Direct Public Offering Process

Whilst there are a number of forms which can be utilized for when a company wishes to go public, the main form is known as a Form S-1 registration statement. Form S-1 is a registration statement. It helps to reduce expenses and risk. It helps to provide protection against oddities in corporate records, SEC trading suspensions, undisclosed liabilities, and a whole host of other things.

SEC Review of Form S-1

When a private company wishes to go public, or even a company which is already public, it is likely that the SEC will undertake a review of Form S-1. They will look at the statement and may make comments. Sometimes they may even make amendments to the registration statement on the form. The registration statement will not be effective until the SEC is satisfied that the company meets their requirements.

Additional Steps when undertaking Direct Public Offerings

As you can probably guess, filing an S-1 registration statement is only a small fraction of going public. Just because you have filed a registration statement, it does not necessarily mean that the issuer’s securities can be traded. It will certainly not result in a ticker symbol being assigned. As mentioned previously, the trader will first need to satisfy the SEC. They will then need to comply with the requirements laid out by the Financial Industry Regulatory Authority (FINRA) before they are able to obtain a ticker symbol.

Obtaining a ticker symbol – the last step in a public offering

FINRA’s guidelines are pretty strict. At the very minimum, there will need to be 25 shareholders. These shares must be registered shares or Pink Sheet listed issuers. Most, if not all, of the shareholders must have paid cash for their share in the company.

Float requirements

In addition to meeting the shareholder requirements, a company must also meet the guidelines laid down by FINRA for public float requirements. At least 10% of the issuer’s outstanding securities should be held by non-affiliates. These will be the ‘Float’. These shares will be unrestricted securities.

Sponsoring Market Maker and Form 211

Form 211 is a form which needs to be filled in by a sponsoring market marker. FINRA, on completion of this form, will provide comments to the selected sponsoring market maker. These comments will need to be addressed. Once they are, a ticker symbol can be assigned and the company’s securities will finally be tradable publically.

A Direct Public Offering is perhaps one of the best ways in which to reduce expenses and risks associated with going public. It is a cost and time effective solution. Finally with the SEC will help avoid much of the rigmarole associated with dealing with other methods.