Going Public & JOBS Act: What are the rules concerning a company’s going public IPO that were liberalized for an Emerging Growth Company?
- Going Public & JOBS Act Change One: The Act now allows stock brokers to make greater written or oral communications about a company that is going public planned IPO offerings even after the company has filed a registration statement for that offering with the SEC. The Act provides that the publication or distribution by a broker or dealer of a research report about an emerging growth company that is the subject of a proposed public offering of the common equity securities of such emerging growth company pursuant to a registration statement that the issuer proposes to file, or has filed, or that is effective shall be deemed not to constitute an offer for sale or offer to sell a security, even if the broker or dealer is participating or will participate in the registered offering of the securities of the issuer. “Research report” means a written, electronic, or oral communication that includes information, opinions, or recommendations with respect to securities of an issuer or an analysis of a security or an issuer, whether or not it provides information reasonably sufficient upon which to base an investment decision. I would note that in practice this may not be likely to happen, at least not for awhile, as most brokerage firms that maintain a Chinese Wall between investment banking and research activities are not going to take the Wall down, particularly for offerings in which the broker is involved. Further, brokers are subject to FINRA rules concerning these matter which may make taking advantage of this liberalization even more problematic.
- Going Public & JOBS Act Change Two: The Act also allows companies considering going public to test the waters with institutional qualified or accredited investors without violating the law. The Act provides that an emerging growth company may engage in oral or written communications with potential investors that are qualified institutional buyers or institutions that are accredited investors to determine whether such investors might have an interest in a contemplated securities offering, either prior to or following the date of filing of a registration statement with respect to such securities with the Commission.
- Going Public & JOBS Act Change Three: The Act provides more flexibility for communications in connection with going public involving research analysts by eliminating and restrictions based on functional role, which associated persons of a broker, dealer, or member of a national securities association, may arrange for communications between a securities analyst and a potential investor; or restricting a securities analyst from participating in any communications with the management of an emerging growth company that is also attended by any other associated person of a broker, dealer, or member of a national securities association whose functional role is other than as a securities analyst. Again, however, brokerage firms may not be quick to take advantage of this provision of the law and also as noted above, brokers are subject to FINRA rules concerning these matter which may make taking advantage of this liberalization even more problematic.
- Going Public & JOBS Act Change Four: The Act allows more flexibility in communications after a going public IPO registration statement has been declared effective by providing that neither the Commission nor any national securities association registered may adopt or maintain any rule or regulation prohibiting any broker, dealer, or member of a national securities association from publishing or distributing any research report or making a public appearance, with respect to the securities of an emerging growth company, either
a. within any prescribed period of time following the initial public offering date of the emerging growth company; or
b. within any prescribed period of time prior to the expiration date of any agreement between the broker, dealer, or member of a national securities association and the emerging growth company or its shareholders that restricts or prohibits the sale of securities held by the emerging growth company or its shareholders after the initial public offering date.