Raising capital for your business as a private company means either an initial public offering (IPO), in which securities — any form of intangible investment such as stocks or bonds — are sold for the first time on the open market and can be purchased by investors. The other option is to offer private placement securities, which also sees intangible investments of a similar nature available for purchase but in this case only to accredited investors such as investment banks.
Whether you opt for private placement securities or an IPO, you will probably require professional assistance from a corporate securities law firm to help you navigate the sometimes confusing waters of securities law. This is because it is different for each type of investment offering.
When a company registers a class of its equity securities, there are specific requirements under the Exchange Act, for example, that require those who acquire a greater than 5% stake in that class of shares to file beneficial owner reports. Those who specialize in corporate and securities law are able to assist companies to better ensure compliance with all regulatory and legal requirements during the offering process.
Regulated by the Securities Exchange Commission (SEC), IPOs require stricter financial reporting than private placement securities issued under Regulation D, which are exempt from some of those financial reporting requirements. In 2014, there was a bumper year for IPOs, with more than $85 billion in proceeds, up from $55 billion in the previous year. The number of IPOs in 2014 also superseded those of 2013 275 to 222.
That year, however, was also characterized by comparatively high levels of SEC enforcement action with 52 cases of insider trading in which 80 people were charged and the SEC charging a further 135 parties with reporting or disclosure violations. In total, 2014 saw the SEC bringing 755 cases, resulting in an agency record of $4.1 billion in penalty collections and disgorgements.