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Initial Public Offering Essay

1898 words - 8 pages

The purpose of this paper is to describe the financing issues that an organization faces when that organization goes public. This paper will use CardioNet, an organization which has had an initial public offering within the past three years, as an example. This paper will explain registration, disclosure, and compliance associated with an initial public offering. This paper will address the cost of issuance, the impact on ownership control and return, and source and application of funds.Registration, Disclosure and ComplianceOnce an organization decides to go public, the next decision to make is where to list. Listing requirements will differ between the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotation System NASDAQ and American Stock Exchange (AMEX). Listing requirements include pretax income, market value and share size of public float, net tangible assets, number of shareholders, and share price. An example of one of these variances is the amount of income before federal income taxes. The NYSE requires $2.5 million for the most recent year and $2 million for the two years preceding that. The NASDAQ only requires $1 million in income before federal taxes in the last fiscal year or in two of the last three years (Inc.com, Stock Exchanges and Security Laws, 2007).An IOP Registration Statement includes two parts. The first part is the official offer or selling document, also referred to as the prospectus. Information in this document includes business operations, management and financial health. Part two contains additional information accessible through the Securities and Exchange Commission (SEC). In addition to a business summary, income statements and balance sheets (audited by an independent CPA), and information regarding management, a registration statement will also include risk factors, compensation and benefits plans, distribution plan for the stock offerings, and a statement on how proceeds will be used (Inc.com, Registration Statement, 2007).Several laws govern the securities industry. The U.S. Securities and Exchange Commission website identifies them as the Securities Act of 1933, Securities Exchange Act of 1934, Public Utility Holding Company Act of 1935, Trust Indenture Act of 1939, Investment Company Act of 1940, Investment Advisers Act of 1940 and Sarbanes-Oxley Act of 2002 (SEC, 2007).The Securities Act of 1933, also known as the "Truth in Securities Law," requires financial and other important information concerning securities being sold to the public must be provided to investors. This Act also prohibits misrepresentation, deceit and fraud in the sale of securities (SEC, 2007).A company issuing a public offering must have a large amount of revenue to complete the process. At one time, an organization could successfully go public with $20 million in revenue. After the Sarbanes-Oxley legislation, a company needs to have $50-75 million. The additional costs will not only prohibit some...

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