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So You Want to Take Your Company Public?

By Anthony Cerminaro

"The following are among the most important matters to be addressed by IPO candidates in the six-to-twelve months before an IPO.

"Pricing Option Grants: For a venture-backed company that grants employee stock options (as almost all do), the SEC will review during the IPO registration process the company's determination of fair market value...it is advisable for a company planning for an IPO to hire an independent valuation firm to determine the fair market value of its stock at the time the company grants options. A rigorous, contemporaneous independent valuation is strong evidence to counter any challenge by the SEC related to the compensation charges included in a company's financial statements...If the company expects an IPO in the next 12?18 months, quarterly valuation updates are generally appropriate...

"Auditor Independence:...While the SEC auditor independence rules generally do not apply to private companies, a pre-IPO company's accounting firm must be independent with respect to each fiscal period (generally three full fiscal years) covered by the financial statements in the IPO registration statement... Accordingly, a company contemplating an IPO in the future should ensure that its accounting firm satisfies the SEC auditor independence rules even prior to the IPO...

Controls and Procedures: The SEC has adopted in the last several years a variety of rules relating to both "disclosure controls and procedures" and "internal control over financial reporting." These rules require public companies to establish and maintain such controls, to evaluate them on a periodic basis and to report on such evaluations in their periodic SEC filings. In addition, a public company's annual report must include a management report on the company's internal control over financial reporting, as well as an audit report from the company's independent auditors.

These requirements make it critical for a company to establish and document robust controls and procedures prior to its IPO...

"Corporate Governance Issues:...It is never too early for a company comtemplating an IPO at some point in the future to [comply with] the corporate governance standards applicable to public companies [including those required] by the Sarbanes-Oxley Act, NASDAQ or NYSE rules...[The requirements include provisions regarding] ...independent directors... audit committees...compensation and nominating committees... codes of conduct... and shareholder approval of option plans..."

Read more in this article by Patrick J. Rondeau for PLI from which the foregoing was taken.

Full post as published by Bizz Bang Buzz Blawg on August 08, 2008 (boomark / email).