Identifying your going-public team — the players
You need expert direction to stage a successful IPO. It is a big production with an imposing cast of characters. Your company will audition and pick some of these professionals, but one of the starring roles is assigned to you. The SEC is a stock character who has long since memorized the lines and knows how to play the role.
The Securities and Exchange Commission (SEC)
The SEC is charged with ensuring a fair and level playing ﬁeld for public companies and their investors. It has the authority to pursue civil and criminal prosecution against those who breach established procedures.
Liability may arise from material misstatements or omissions in a registration statement. If the SEC ﬁnds mistakes during the registration process, it can delay your IPO. If it ﬁnds mistakes or omissions after your company goes public, your company may soon have a thorough — and unpleasant — understanding of what legal liability is.
It is your duty to potential shareholders to constantly monitor the drafting of the registration statement. Make sure that you completely understand all of its components and the assumptions behind those components. The outside professionals you hire to execute your IPO are experienced business advisors. They help you make the ﬁnal decisions, not make them for you.
The SEC’s Division of Corporation Finance reviews the registration statement and, ultimately, allows or denies an issue to “go effective,’ that is, to sell shares. Registrants generally are assigned to the SEC’s Division of Corporation Finance’s review branches on the basis of standard industrial classiﬁcation (SIC) codes. Teams of government attorneys and accountants — and in some cases industry specialists or engineers — review each ﬁling. The chain of review leads up to
the director of the division and the issuance of a “comment letter,” as more fully described in “The Going-Public Process.”
The SEC concerns itself with the thoroughness and the clarity of the registration statement and the prospectus to ensure that these documents adequately inform potential investors. Keep in mind that the SEC only regulates the vehicle used to offer a security; it evaluates neither the company nor the quality of the security.
The level of your company’s participation in the process of preparing the registration document frequently depends on the expertise of the company’s personnel, although typically your outside counsel will play a large part in the drafting process. In any case, company personnel will have to provide the necessary information with which to prepare the document and be actively involved in all aspects of the registration process.