Ready, Set, Go Public—The 10 Things You Need to Do Now

2/11/10

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be independent; the audit committee must be composed of at least three directors who satisfy financial literacy tests and stringent independence standards; and the compensation and nominating/corporate governance committees must consist solely of independent directors. There are transition rules for new public companies, but you’ll need a plan for timely compliance. Director recruitment-especially for the audit committee-can take substantial time. Note to VC-backed companies: it’s unlikely that a director affiliated with a large investor (more than 20 percent stake) will qualify as independent for audit committee membership.

• Prepare to Govern: Every IPO company must develop a slew of corporate governance materials and practices required by SEC and stock exchange rules. You’ll need charters for the board’s audit, compensation, and nominating/corporate governance committees; corporate governance guidelines; a disclosure policy; a code of business conduct and ethics; an insider trading policy; a related person transaction policy; and disclosure controls and procedures. You should start now, because these topics reflect fundamental governance decisions and often require extensive board discussion.

• Reload Stock Incentives: Almost every public company uses equity incentives to retain and motivate employees. Prior to going public, most companies adopt a new stock incentive plan with enough shares for several years and other suitable features for a public company. An employee stock purchase plan (ESPP) can also be put in place. Since stockholder approval is much easier to obtain while the company is still private, new stock plans should be adopted prior to the IPO.

• Remember the Tax Man: The possibility of substantial appreciation in the value of pre-IPO stock creates estate planning opportunities. But don’t dawdle: these arrangements are more valuable if put in place when the stock has less value, not the day before IPO closing. Also, you’ll need to understand the tax consequences of stock option exercises and stock sales after the company is public.

• Hire Good Help: Yes, you can still get good help, at least for an IPO. Top-shelf management, lawyers, accountants, and investment bankers make a huge difference. Make sure to pick ones that have handled lots of companies and IPOs like yours. IPO apprentices need not apply.

• Mind Your Business: Above all else, don’t take your eye off the business. Public investors are demanding and expect substantial revenues, strong growth, and profitability (or at least great potential, like a biotech company’s pipeline of drug candidates). Make sure your business model is sustainable before committing to an IPO. Once you start the IPO process, keep a razor sharp focus on hitting your operating targets. And, since the timing of any IPO is uncertain, make sure you have enough cash to fund the journey.


David A. Westenberg, a partner in the Corporate Practice Group of WilmerHale in Boston, is author of the book Initial Public Offerings: A Practical Guide to Going Public (Practising Law Institute), hailed by The New York Times as “the bible of the I.P.O. market” (January 19, 2010). Follow @

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  • Ryan McBride

    David,
    This is great stuff. I’ll have to read your book on IPOs to get more info on the rules about quiet periods, because they can be a huge barrier to the press getting access to some companies.
    -Ryan

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