Navigating the IPO Process: Legal Considerations for Going Public
Taking a company public through an initial public offering (IPO) represents a pivotal milestone in the lifecycle of a business. It opens access to capital markets, enhances visibility, and can significantly increase the value of a company.
However, the process is intricate and laden with legal, regulatory, and procedural requirements. For companies based in Florida, these considerations take on an added dimension due to state-specific regulations and local market dynamics.
Understanding the initial public offering process is crucial for those taking a company public. At Frederick M. Lehrer in Clermont, Florida, I provide high-caliber representation for clients taking a company public. Here, we’ll examine regulations, the roles of key stakeholders, and the practical steps required to confirm compliance and success in a Florida-based IPO.
The IPO Process
An initial public offering is the process by which a privately held company offers shares of its stock to the public for the first time. This transition requires adherence to regulations enforced by the U.S. Securities and Exchange Commission (SEC), as well as state securities regulators—in Florida’s case, the Florida Office of Financial Regulation (OFR).
The key stages of the IPO process typically include:
Preparation and planning
Due diligence and documentation
Filing and SEC review
Marketing (Roadshow)
Pricing and launch
Post-IPO compliance
Each of these phases entails specific legal steps, which we’ll examine in detail.
Federal Oversight
At the federal level, the initial public offering process is governed primarily by the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC confirms that public offerings are transparent and that companies provide full disclosure of material information. The principal document involved is the registration statement (Form S-1), which includes:
Prospectus
Financial statements (audited)
Risk factors
Business overview
Management discussion and analysis (MD&A)
Therefore, adherence to these federal regulations and the comprehensive S-1 filing are foundational to the IPO process.
State Blue Sky Laws
Florida’s Blue Sky Laws, codified in Chapter 517 of the Florida Statutes, govern securities offerings within the state. These laws are designed to protect investors from fraud and to confirm that securities transactions are fair and transparent. Florida is known for its relatively streamlined process for IPO-related securities registration compared to some other states.
Florida generally recognizes federal preemption for certain offerings under the National Securities Markets Improvement Act of 1996 (NSMIA). However, certain notice filings and fees may still be required for offerings exempt under federal law but not exempt under Florida law.
Legal Considerations for a Florida-Based IPO
Beyond federal oversight by the SEC, Florida's specific Blue Sky Laws and state regulations add another layer of considerations for businesses seeking to enter the public markets. Understanding these legal nuances is crucial for a successful initial public offering.
Corporate Structuring and Governance
Before initiating an IPO, Florida companies must make sure that their corporate structure aligns with public company standards. This may involve:
Reincorporating in Delaware (common due to favorable corporate laws)
Establishing a board of directors with independent members
Creating committees (Audit, Compensation, Nominating)
Drafting or revising bylaws and corporate governance policies
Legal counsel should be engaged early to evaluate whether the existing corporate structure is suitable for public scrutiny and whether a Delaware reincorporation is advisable.
Selection of Underwriters and Advisors
The initial public offering process requires a team of experts, including:
Investment bankers (underwriters)
Securities counsel (law firms specializing in IPOs)
Certified public accountants (CPA firms for audited financials)
Investor relations professionals
In Florida, many companies retain national firms with offices in cities like Miami, Tampa, or Orlando to gain both local presence and national expertise.
Underwriters play a critical role in pricing, marketing, and distributing the securities. They also conduct due diligence, and legal teams must help prepare a disclosure that stands up to scrutiny.
Due Diligence and the S-1 Filing
Due diligence is essential to minimize liability and uncover potential issues before public disclosure. Legal teams conduct extensive reviews of:
Corporate records
Employment and compensation agreements
Intellectual property
Litigation risks
Regulatory compliance
Tax records
Following due diligence, the company prepares and files Form S-1 with the SEC. This document becomes publicly available and must be accurate and complete.
In addition to federal filings, Florida law requires a Notice Filing under Section 517.1201 of the Florida Statutes if the securities are considered “covered securities.” This involves:
Filing Form U-1 or U-2
Paying a notice fee
Designating a consent to service of process
Responding to SEC Comments
The SEC review process involves a detailed examination of the S-1 filing. The SEC often issues comment letters asking for clarifications or additional disclosures. Legal counsel must respond promptly and thoroughly.
This iterative process can take several weeks or months. While Florida doesn’t typically impose additional reviews at this stage, it’s important to monitor any material state-level developments, especially if any part of the offering targets Florida-based investors.
Roadshow and Marketing
Once the SEC gives initial clearance (often called “going effective”), the company begins marketing the initial public offering through a “roadshow.” This process is governed by strict SEC rules regarding “gun-jumping” and permissible communications.
Florida companies must also comply with anti-fraud provisions in both federal and state law, including:
Rule 10b-5 under the Exchange Act
Florida Statutes § 517.301 (Fraudulent transactions)
All statements made during the roadshow must be consistent with the information disclosed in the prospectus.
Pricing, Launch, and Closing
The underwriters, in coordination with the company, set the final price of the IPO. Legal counsel oversees the execution of:
Underwriting Agreement
Legal opinions
Comfort letters
Blue Sky Memoranda (for compliance with state laws, if needed)
Once everything is in place, shares are sold to the public, and the company begins trading on the selected stock exchange (e.g., NASDAQ or NYSE). Florida law requires final notice filings within a set timeframe following the offering.
Post-IPO Reporting and Compliance
Going public introduces ongoing legal obligations under the Exchange Act, including:
10-K and 10-Q reports: Annual and quarterly financial disclosures
8-K filings: Material events disclosure
Proxy statements and annual meetings: Outline voting matters like board elections and executive compensation and must comply with SEC disclosure rules for shareholder transparency.
Insider trading compliance: Section 16 reporting for officers and directors
Florida companies must also monitor compliance with local laws, including employment laws, tax implications, and industry-specific regulations (e.g., healthcare or financial services).
For Florida companies, undertaking an initial public offering is a major growth step requiring careful traversing of both federal SEC regulations and Florida-specific laws. This intricate process demands meticulous planning and a thorough understanding of corporate structuring, due diligence, and ongoing compliance to succeed in the public markets.
Key Legal Risks and How to Mitigate Them
Key legal risks in the initial public offering process include misstatements or omissions in filings, which can lead to SEC enforcement or investor lawsuits, necessitating robust due diligence, legal reviews, and accurate disclosures for mitigation.
Internal control deficiencies pose another risk by hindering compliance and undermining investor confidence, which can be addressed by implementing Sarbanes-Oxley Act (SOX) Section 404 controls and audit procedures.
Pre-IPO litigation exposure can delay or derail the offering, requiring resolution of outstanding disputes or comprehensive disclosure. Finally, volatile market conditions can impact pricing or delay the IPO, for which maintaining flexibility with timing and communication with underwriters is a key mitigation strategy.
State-Specific Considerations in Florida
While federal law governs the majority of the initial public offering process, several Florida-specific issues may arise:
State taxation: Florida doesn’t have a state income tax for individuals, but it does impose a corporate income tax. This can affect financial projections and valuations.
Local economic incentives: Some Florida jurisdictions offer economic development incentives for companies expanding operations post-IPO.
Real estate and infrastructure: Companies based in Florida may face unique regulatory challenges if real estate or environmental factors are material to the business.
Employment law compliance: Florida’s labor laws, though generally employer-friendly, still require careful compliance post-IPO as the company grows.
Therefore, Florida-based companies pursuing an IPO must carefully consider these state-specific factors alongside federal regulations for a successful public offering.
Going public is a transformational journey for a Florida-based company. While the benefits of an IPO—such as enhanced access to capital and market visibility—are significant, the legal intricacies are substantial. Companies must work through regulations, coordinate with a range of professionals, and commit to a high level of disclosure and transparency.
Contact Me Today
Understanding the legal structure is the first step in a successful initial public offering. I, Frederick M. Lehrer, serve clients in Orange County, Florida, as well as internationally. I am dedicated to providing high-quality representation in your business matters. Contact me today for a consultation for your company’s initial public offering.
