IPO Considerations Relating to Emerging Growth Companies:

One thing to keep in mind before investing in an IPO is that many disclosure and other requirements that now apply to public companies are phased in over time for what are called “emerging growth companies.” Emerging growth companies generally have less than $1 billion in revenue. A company will remain an emerging growth company for up to five years after becoming a public company, unless its revenue exceeds $1 billion or it exceeds certain other thresholds.

Please keep in mind that this post is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon for legal or investment advice. If you have any questions concerning the contents of this post, please contact a qualified professional.

In considering an investment in an emerging growth company, please consider the following:

1.  Emerging growth companies may elect to have the same extended periods of compliance that may be available for private companies to implement any new or revised accounting standards. This means that other public companies may have to implement new or revised accounting standards before emerging growth companies do. Emerging growth companies will have to disclose whether or not they are electing to take advantage of the extended compliance periods. When you compare an emerging growth company’s financial statements to those of other companies, you should keep this potential difference in mind.

2.  Emerging growth companies are not required to have their auditors annually assess their internal controls over financial reporting. Other public companies that are not emerging growth companies have up to two years after their IPO before they are required to have their auditors assess their internal controls, and smaller reporting companies are exempt from this requirement. After the IPO, management of emerging growth companies will have to assess the effectiveness of internal controls, like other public companies, but a separate auditor’s assessment of such controls is not required.

3.  Emerging growth companies do not have to disclose as much about executive compensation as other public companies.

4.  Emerging growth companies do not have to conduct shareholder advisory votes on executive compensation arrangements, such as “say-on-pay” and “say-on-golden parachutes” votes.

5.  Brokers and dealers, including underwriters who are participating in an emerging growth company’s IPO, are allowed to provide research reports regarding emerging growth companies prior to, during and after the IPO registration process. These research reports may not present all the information required in a prospectus filed with the SEC and are not subject to the stricter liability standards for a prospectus. Investors should keep in mind that brokers and dealers participating in the offering may face a conflict of interest between their obligation to provide their research clients with a balanced research report on a company and their desire to facilitate a successful offering on behalf of the company, which is their investment banking client or potential client.

6.  A research report can provide useful information, but as a general matter, you should never rely solely on a research report. You should also do your own research-such as reading the prospectus-to determine whether a particular investment is appropriate in light of your own financial circumstances.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.