When a company chooses to do an initial public offering, it has made a monumental decision. The decision to go public can bring many strategic advantages which can propel the future growth of the company. The pecuniary benefits draw companies to this path. When a company becomes a public company it is able to raise money by selling shares to investors. Typically private companies decide to take this step when they need additional capital and private financing sources are insufficient.

By going public an enterprise enters a different dimension for company finance. However, becoming a public company is not without its associated costs. An IPO is only a good option for a company with a tolerance for the risks involved. There is a high failure rate for those with proceeds of less than 1 million dollars, even in the more open Toronto Venture Exchange, is a significant drawback for early stage start ups. The risk of underpriced shares that denies market value is a possibility. The process costs can be daunting. The costs include the regulatory requirement costs, the cost of preparation of the offering prospectus, payment of fees and paying professionals employed to assist in the preparations for offering. There can be unwelcome pressure to focus on short-term results in order to meet investor demands for a return on their capital, that can short change long-term strategic growth imperatives. Hence, businesses need to seriously consider whether the benefits outweigh the risks for them.

The process of turning a privately owned enterprise into a publicly traded company with an Initial Public Offering imposes rigorous demands. Skilled legal, accounting and underwriting advisory professionals have to be employed. These professionals guide the preparation process. In this preparation process they also help the owners carefully consider the advantages and disadvantages of going public. A thorough understanding of the process is acquired with the aid of these advisors. A business plan is strategized. This business plan is followed by strategic management of the process so that the company goes to market at the right window of market opportunity. Timing is a key factor in making the moment of market entry the most productive. Typically the process of realizing this plan can take around 3 months or a 100 days to complete.

The present economic conditions in the United States have meant that small and midcap companies are finding it increasingly difficult to go public. As a result, more companies are deciding to go public outside the United State, in Canada and elsewhere. The Canadian exchanges are seeing growing traffic in their direction from US companies. The better economy north of the border, the stronger financial conditions of the banks and prospective investors have increased the appeal of these exchanges. The Toronto Stock Exchange TSX and the TSX Venture Exchange are where most Canadian public companies are listed. The Venture Exchange lists venture class securities and is a magnet for young companies. They can later graduate to the senior exchange when their maturation process graduates them to that level. Both Toronto exchanges have exemptions for small public companies that make them favorable for American companies. Companies with capitalizations too small for US exchanges are welcomed in the Toronto exchanges. The smaller, more entrepreneurial Venture Exchange will also list companies that are still in the pre revenue stage, which is more of an anomaly on other stock exchanges. Shares of small and mid-cap stocks also trade more easily in Canada than other international markets. The easier process and less burdensome requirements have led to their having more listed public companies than any other exchange in North America.

The Process of Going Public in Canada

Once management makes the decision to take the business public, a lawyer specializing in securities law must be retained. The lawyer helps management to organize the business in compliance with the applicable policies, regulations and statutes. The lawyer prepares a prospectus based on information provided by the company and its advisors. The prospectus is a detailed document about the enterprise. It provides information sufficient to inform investor decisions concerning purchase of the securities offered. The prospectus must describe the enterprise and its holdings, its capitalization and future plans, including how proceeds from the share sale will be spent. It is required that it provide complete and truthful disclosure of all materials facts and comply with the relevant laws and policies.

Once the prospectus has been prepared, the lawyer files the prospectus, supporting documents and applicable fees on behalf of the company with the applicable provincial securities regulator. The regulator then issues a preliminary filing receipt, which enables the company to solicit interest from potential investors. After examination of the filed material, the provincial securities regulator comments on the disclosure in the prospectus. Once the comments have been dealt with and investor interest has been gauged, a final prospectus is filed with the regulator. A receipt of acceptance is issued thereafter.

With this final receipt, the company becomes a reporting issuer. As a reporting issuer the company is entitled to sell shares. The sale process is generally handled by underwriters or agents. They possess the knowledge, sales experience to affect a successful offering. They are paid by a commission or a discount on the price of the shares. They can also be given options to acquire company shares in future or be compensated in more than one way. Once public, a company must maintain an up to date accurate profile on the public record. This requires continuous disclosure that keeps shareholders informed on a timely basis. Continuous disclosure also means making necessary filings with the provincial Securities Commission, the Registrar of Companies and any stock exchange on which the company lists its shares.

Listing on a Canadian Stock Exchange

A reporting company is entitled to apply for a listing on any stock exchange, after it has received its final prospectus filing receipt and met the listing requirements of that exchange. The TSX Venture Exchange may permit a conditional listing with the final receipt. The shares are listed for trading after the satisfaction of the minimum listing requirements. The provincial securities commissions and the stock exchanges impose certain requirements that have to be met before an application for listing is accepted. A review of all applicable legislation, provincial securities commission policies and bylaws, rules and policies of the relevant stock exchange. The professionals employed for the purpose of guiding the offering will be of assistance at this stage as well.

Author Bio: In order to grow and expand, many companies will go through the IPO process and make a New IPO to the general public. A new Initial Public Offering valuation is usually made, and Canadian IPOs are becoming more common nowadays.

Category: Finances
Keywords: investment, banking, stocks,securities, money,business, bonds, stock market, shares, shareholder