Pre-IPO Compliance

Our Firm Assists Companies and Their Founders with All Aspects of Pre-IPO Compliance and Other Pre-IPO Matters

Conducting an initial public offering (IPO) is a process. It is a process that is lengthy and time-consuming, and it is a process that carries many risks for the unwary. Company founders who are pursuing IPOs need to a prioritize compliance early, and they need to be cognizant of traps that can lead to both corporate and individual liability.

At Oberheiden P.C., we guide companies through the entire pre-IPO process. From assessing compliance needs and developing strategies to addressing these needs and resolving complex issues in real time, we operate as full-service outside general counsel for our pre-IPO clients. With our vast experience in the area of federal corporate defense, we are able to assist our clients with pre- and post-IPO government investigations and enforcement proceedings as well.

Comprehensive Legal Representation for Pre-IPO Compliance

There are numerous aspects to pre-IPO compliance. When engaged as pre-IPO compliance counsel, we assist our clients with all necessary aspects, including:

Securities Laws and Regulations

While the Sarbanes-Oxley Act (SOX) continues to play a central role in pre-IPO compliance, it is far from the only source of federal legal authority governing public securities offerings. Pre-IPO companies must navigate a complex landscape of federal laws and regulations that touch on all aspects of the process, from documentation and recordkeeping to the timing of public disclosures. 

Securities Exchange Rules

The Nasdaq, NYSE, and other securities exchanges all have their own unique sets of rules that govern IPOs and the sale of post-IPO shares. On top of addressing federal legal and regulatory compliance, pre-IPO companies must address compliance with the relevant set of securities exchange rules as well. This includes compliance with the exchanges’ rules regarding initial listing requirements, corporate governance requirements, calculation and payment of listing fees, and a multitude of other issues.

Use of Proceeds

The U.S. Securities and Exchange Commission (SEC) requires pre-IPO companies to disclose how they intend to use the proceeds generated through their public offerings. Pre-IPO companies must separately identify all intended uses, the amount of the proceeds that will be dedicated to each use, and the timing of expenditures from their IPO proceeds for each identified use.

Accounting and Financial Reporting

In today’s world, accounting and financial reporting are major components of pre-IPO compliance. Several of the SEC’s regulations and the rules promulgated under SOX establish accounting and financial reporting requirements, and companies must determine which specific rules and regulations apply based on factors including (but not limited to) their financing sources, acquisition history and prospects, guarantors, and affiliates.

Internal Controls

Another major aspect of pre-IPO compliance is the establishment of internal controls. Under SOX, companies must establish appropriate internal controls in five areas and create an interrelated framework that addresses: (i) control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. This is among the most-scrutinized areas of pre-IPO compliance, and it is imperative that companies have thorough documentation of their efforts to establish adequate internal controls that are custom-tailored to their specific operations and risks.

Board Issues

Ensuring that the company’s board ticks all of the boxes for compliance is essential as well. For IPO purposes, board member independence is a key issue, and companies must ensure that their boards have a sufficient number of “independent” members—as defined by both federal law and the relevant exchange rules. Companies may also need to establish various committees that are tasked with ensuring the requisite level of board independence through nomination and compensation controls—among others.

Shareholder Issues

From underwriters’ requirements for minimum insider holdings to sales by existing shareholders as part of the IPO process, various nuanced and complex shareholder issues can give rise to pre-IPO compliance obligations. Shareholder lock-ups and individual shareholder disclosures (for those who own a five-percent or greater interest in the company) are also important considerations for pre-IPO compliance.

Related-Person Transactions

While permitted under appropriate circumstances, related-person transactions typically face significant scrutiny during the pre-IPO process. This includes scrutiny from the SEC, exchanges, underwriters, and prospective institutional investors. Any related-person transactions must be structured and timed to strictly comply with SOX and the relevant exchange rules.

Codes and Procedures

Under SOX, all publicly traded companies must have a written Code of Ethics. Exchange rules typically require listed companies to have a written Code of Conduct or other similar set of internal governing policies and rules. SOX also requires all companies to adopt written procedures for handling whistleblower complaints, and companies preparing for IPOs will need to implement various other internal policies and procedures as well.

Tax

Initial public offerings have myriad tax implications for the company and its shareholders. Not only is tax compliance crucial, but strategic tax planning is also essential for mitigating the company’s and its owners’ tax liability post-IPO. Our team includes former tax attorneys and Special Agents with the Internal Revenue Service (IRS) who have experience on both sides of corporate tax compliance matters.

Media and Investor Relations

Media and investor relations are areas where company founders often get into trouble. While these might seem like areas with minimal compliance implications, this is not the case. Companies must carefully draft and time all press releases, social media posts, and investor disclosures during the pre-IPO process to avoid violating the laws and regulations that govern IPO-related communications.

“Gun-Jumping”

Pre-IPO publicity that runs afoul the laws and regulations governing IPO-related communications is called “gun-jumping.” It can delay a company’s IPO, and it can potentially lead to penalties for the company and its founders as well. During the pre-IPO process, it is essential that all company insiders receive appropriate training regarding publicity (including, but not limited to, publicity on social media), and that the company have processes in place to ensure legal review of all statements proposed for dissemination.

Put our highly experienced team on your side

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former Department of Justice

Brian J. Kuester

Former U.S. Attorney
Former DA

John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Joe Brown

Former U.S. Attorney & Former District Attorney

Local Trial & Defense Counsel

Amanda Marshall

Former U.S. Attorney

Local Counsel

Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach

Former Special Agent (OIG)

Michael Koslow

Former Supervisory Special Agent (FBI)

Chris Quick

Former Special Agent (FBI & IRS-CI)

Ray Yuen

Former Supervisory Special Agent (FBI)

Additional Legal Considerations for Pre-IPO Companies

While pre-IPO compliance presents a major undertaking, it is far from the only aspect of conducting an initial public offering that has legal implications. From ensuring that the company is appropriately structured to conduct an IPO to ensuring that it has adequate protections in place to mitigate the risk of outsiders exposing non-public information, there are many additional steps companies and their founders need to take before going public.

At Oberheiden P.C., we work closely with our clients to identify and address their specific needs so that they can execute their IPOs with confidence. This includes identifying and addressing needs in the areas of:

• General Corporate and Industry-Specific Compliance
• Corporate Structuring
• Corporate Governance
• Executive Compensation
• Internal Audits
• Cheap Stock Rules
• Relationships with Auditors, Underwriters, and Investment Banks
• Third-Party Due Diligence
• Confidentiality and Protection of Proprietary Data
• Cybersecurity
• Enterprise Risk Management
• Liability Insurance

FAQs: Legal and Regulatory Compliance for Pre-IPO Companies

Speak with a Pre-IPO Compliance Lawyer at Oberheiden P.C.

If you would like to know more about our legal services for pre-IPO companies, we encourage you to get in touch. Call 888-680-1745 or contact us online to schedule a complimentary initial consultation.