The Basics Of An Initial Public Offering

When a company chooses to do an initial public offering

, it has made a monumental decision. The decision to go public can bring many strategic advantages which can propel the future growth of the company. The pecuniary benefits draw companies to this path. When a company becomes a public company it is able to raise money by selling shares to investors. Typically private companies decide to take this step when they need additional capital and private financing sources are insufficient.

Nonetheless, along with the financial benefits there are costs private businesses do not have. This step is particularly risky for very young companies with very low proceeds. There is also risk of shares are underpriced so less capital is made in this effort. Also, there are attendant procedural and regulatory and disclosure expenses. Short term profits may also short change goals, as investors seeking an investment return generally favor the former over the latter.

The process of turning a privately owned enterprise into a publicly traded company with an Initial Public Offering imposes rigorous demands. Skilled legal, accounting and underwriting advisory professionals have to be employed. These professionals guide the preparation process. In this preparation process they also help the owners carefully consider the advantages and disadvantages of going public. A thorough understanding of the process is acquired with the aid of these advisors. A business plan is strategized. This business plan is followed by strategic management of the process so that the company goes to market at the right window of market opportunity. Timing is a key factor in making the moment of market entry the most productive. Typically the process of realizing this plan can take around 3 months or a 100 days to complete.

With the challenging IPO marketing conditions in the United States, American companies are seeking foreign alternatives. The proximity of Canada, the strength of the Canadian economy and sound stock exchanges, make the decision of a Canadian public offering increasingly common for certain companies. In Canada, the Toronto TSX and TSX Venture Exchange are dominant. The Venture exchange is a draw for the smaller budding companies. These exchanges also impose less burdensome requirements on companies than American counterparts. The Canadian market is also more friendly to trading of smaller company shares.

The Process of Going Public in Canada

The process requires the hiring of an outside lawyer with a specialization in securities law. This attorney will ensure that the proper procedural steps are undertaken. He or she will prepare the offering prospectus used in the selling of shares. The prospectus provides detailed information for investors.

After the prospectus is drafted, it is then filed along with any supporting documents with a provincial securities regulator. Upon the filing the regulator will provide a receipt of filing. This receipt permits the company to now approach its potential investors to gauge the market friendliness for the issue. Upon its review of filed documentation, the provincial regulator provides comments on the filed documentation. Thereafter, a final filing is made which incorporates new information to the initially filed prospectus and its supporting documents. A receipt is provided after this filing as well and marks the end of one procedural stage.

With this receipt, the company can start the process of selling shares and listing with the stock exchange. The sale is generally managed by security agents or underwriters. The agents or underwriters are compensated with a discount on the share price, option to purchase shares at a future date, paid a commission, or a combination of the foregoing. As a public company, the company has the responsibility for maintaining up to date disclosure. This requires keeping investors informed and making the necessary filings of reporting material with provincial securities commissions, the Registrar of Companies and any stock exchange on which shares are listed.

Listing on Canadian Stock Exchanges

Once the final receipt is received from the securities commission, an application can be made for listing on the stock exchange. The listing requires meeting the exchange listing requirements. This will require knowledge of the laws, policies, rules and bylaws that apply. Professional advisors will help in this process.

by: Adriana Noton.

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