Registering Securities

How Does My Small Business Register a Public Offering?

If you decide on a registered public offering, the Securities Act requires your company to file a registration statement with the SEC before the company can sell its securities. Any information contained in registration statements become public immediately upon filing. But the SEC will not allow you to sell securities to the public until the SEC staff has had a chance to review the registration statement.

Registration statements have two principal parts:

  • Part I is the prospectus, the legal offering or “selling” document. In the prospectus, your company–the “issuer” of the securities–describes the important facts about its business operations, financial condition, and management. Everyone who buys the new issue, as well as anyone who is made an offer to purchase the securities, must have access to the prospectus.
  • Part II contains additional information that the company does not have to deliver to investors. Anyone can see this information by requesting it from one of the SEC’s public reference rooms or by looking it up on the SEC Web site.

The Basic Registration Form – Form S-1

All companies can use Form S-1 to register their securities offerings. You cannot not prepare a registration statement as a fill-in-the-blank form, like a tax return. It is more similar to a brochure, providing readable information to the public. In the S-1, a company must describe each of the following in the prospectus:

  • its business;
  • its properties;
  • its competition;
  • the identity of its officers and directors and their compensation;
  • material transactions between the company and its officers and directors;
  • material legal proceedings involving the company or its officers and directors;
  • the plan for distributing the securities; and
  • the intended use of the proceeds of the offering.

Information about how to describe these items is set out in SEC rules. Registration statements also must include financial statements audited by an independent certified public accountant.

In addition to the information expressly required by the form, your company must also provide any other information that is necessary to make your disclosure complete and not misleading. You also must clearly describe any risks prominently in the prospectus, usually at the beginning. Examples of these risk factors are:

  • lack of business operating history;
  • adverse economic conditions in a particular industry;
  • lack of a market for the securities offered; and
  • dependence upon key personnel.

Alternative Registration Forms for Small Business Issuers

If your company qualifies as a “small business issuer,” it can choose to file its registration statement using one of the simplified small business forms. A small business issuer is a United States or Canadian issuer that had less than $25 million in revenues in its last fiscal year, and whose outstanding publicly-held stock is worth no more than $25 million.

Form SB-1 – To Raise $10 Million or Less

Small business issuers offering up to $10 million worth of securities in any 12-month period may use Form SB-1. This form allows you to provide information in a question and answer format, similar to that used in Regulation A offerings, a type of exempt offering discussed below. Unlike Regulation A filings, Form SB-1 requires audited financial statements.

Form SB-2 – To Raise Capital in Any Amount

If your company is a “small business issuer,” it may register an unlimited dollar amount of securities using Form SB-2, and may use this form again and again so long as it satisfies the “small business issuer” definition. One advantage of Form-2 is that all its disclosure requirements are in Regulation-B, a set of rules written in simple, non-legalistic terminology. (Not that you won’t need a lawyer anyway!) Form SB-2 also permits the company to provide audited financial statements, prepared according to generally accepted accounting principles, for two fiscal years. In contrast, Form S-1 requires the issuer to provide audited financial statements, prepared according to more detailed SEC regulations, for three fiscal years. Moreover, SB-2 needs less extensive narrative disclosure than Form S-1 requires, particularly in the description of your business, and executive compensation.

Companies have used the small business forms in dramatically increasing numbers since the SEC revised the forms in 1992.

Staff Review of Registration Statements

SEC staff examines registration statements for compliance with disclosure requirements. If a filing appears incomplete or inaccurate, the staff usually informs the company by letter. And in the experience of the authors of this web site, the SEC always sends a letter! The company may file correcting or clarifying amendments. Once the company has satisfied the disclosure requirements, the staff declares the registration statement effective. The company may then begin to sell its securities. The SEC can refuse or suspend the effectiveness of any registration statement if it concludes that the document is misleading, inaccurate, or incomplete.