IPO? What You Need To Know

Perkins Coie’s startupPerColator is kicking off a series to help later stage companies contemplating an initial public offering, or an “IPO,” prepare for this complex and significant milestone in the life of the company. An IPO, is the result of a great deal of effort, coordination of resources and resolution of myriad legal and business issues. Below are a few tips on how to start preparing your company as you approach your IPO.

TOP 10 THINGS YOU CAN DO NOW TO PREPARE FOR YOUR IPO

1. Accounting. Discuss in detail with your auditors steps that will prepare your financial statements and reporting processes for the IPO and public reporting, including:

•  completing all necessary audits
•  ensuring “national” review of the company’s financial statements to assess whether they
meet public company standards;
•  undertaking any review of items of concern (such as option grants) and identifying all
significant accounting policy issues; and
•  assessing whether the company has the staffing to handle the demands of public
reporting, including the speed and accuracy required for quarterly and annual reports.

2. Liquidity Rights. Review stockholders’ and registration rights agreements to determine whether any current stockholders have a right to sell shares in the IPO, and plan for giving proper notice to those stockholders.

3. Compensation Arrangements. Establish or amend director and employee compensation arrangements, particularly equity compensation plans, and plan for repayment and termination of any outstanding executive or director loans.

4. Board of Directors. Review board composition with an eye toward public company requirements and needs. Does the company’s board have sufficient independent directors and the right mix of skills for the overall board and for board committees? If necessary, begin recruitment of additional independent directors or directors with needed skills and experience. Consider quality and level of director and officer liability insurance (D&O insurance).

5. Communications. Discuss rules and practical considerations governing pre-offering communications and establish an internal and external communications policy. Review the company’s website with counsel and consider changes necessitated by a potential public offering.

6. Corporate Governance/Maintenance. Review internal staff policies and procedures in the context of public company compliance requirements.  Consider need for reverse or forward stock split and/or amendments to articles of incorporation or bylaws. Consider need for change in jurisdiction of incorporation.

7. Litigation. Identify and, if beneficial to the IPO, resolve any material outstanding disputes with employees, stockholders, customers or business partners.

8. Due Diligence. Prepare for the due diligence process by organizing documentation, reviewing a due diligence request list and appointing due diligence coordinators at the company. Ensure that material customer or supplier relationships and all material transactions are fully documented.  Identify material contracts with highly sensitive terms for which the company may want to request confidential treatment when publicly filed with the SEC as part of the IPO registration statement. Identify contracts required to be filed, but that contain confidentiality provisions, and determine how to resolve.

9. Drafting. Allocate responsibility for offering process tasks, and identify the company’s point person or persons for the IPO (often the chief financial officer or general counsel). Begin preparation of an initial draft of the prospectus.

10. Start to “Think Like A Public Company.”  Articulate a clear business strategy that can be conveyed to investors.  Meet with investment bankers and analysts.  “Practice” disclosure controls and closing financial quarters on a public company timeline.