Common Prep Procedures Before Taking Your Company Public

Despite what some shell promoters claim, going public isn’t a slam-dunk, two week process. It takes time. In the case of a reverse merger, you’re often trying to fit a square peg in a round hole. And even if you go public via a direct public offering, there are numerous financial regulatory issues that need to be hurdled before your stock shares will be “up and trading.” The preparations that seem simple seldom are and preparing for the day when your company is public is likely to start far in advance.

The two most common preparations that are often ignored are converting to the proper corporate structure and participating in a financial compliant audit.

Proper Corporate Structure

Unless a company was intent on going public from the outset, it’s highly unlikely the business was structured properly. All publicly-traded companies require C-corporation status. Period.

While the process of converting from an LLC or S-corp isn’t rocket science, it is part of the requisite process prior to going public direct or performing a reverse merger. C-corporations are not the most efficient structures for many a small business. They really become most efficient when a company reaches a particular size threshold. The differences between the three corporate structures and how they relate to a public offering are worth studying before committing to a conversion path.

When companies elect C-corp status, they’re most likely to incorporate in either Delaware or Nevada. This is due in part to helpful tax structure, in the case of Nevada, or because of the well-defined corporate law, as in the case of Delaware. So if you’re contemplating, the conversion cost is often minimal, unless taxes are due, but the ongoing costs will likely be higher thanks to the double-taxation of a C-corp.

Audit-Ready Financials

Yes, you will need an audit prior to going public. That means you’ll likely need audit-ready financials prior to your audit. Corporate managers often forget that PCAOB audits are the last line of protection before the SEC takes task to your business. The first step, before the audit even occurs, is to ensure your financials have been prepared by a PCAOB-compliant firm. Sarbanes-Oxley has forced an additional layer and cost that many firms simply don’t wish to incur.

Financials prepared in accordance with GAAP, suitable for a publicly-traded company, requires a good firm, but for micro-cap companies you want compliance without having to pay out the nose for it. That’s quite possibly the most difficult aspect of getting your financial house in order before taking your company public. Because we encourage an investment environment that focuses on sustainability, we highly discourage jumping into the public market by joining the ill-fated pink sheets.

Because pinks allow for far less transparency and disclosure requirements, the opportunity for the stereotypical reverse merger shenanigans is rampant. And since we’re trying to elevate reverse mergers above their tainted past, we only like to deal in opportunities where there is a sound audit performed. In short, we like what the SEC likes and frankly you should too.

Additional Preparatory Steps That Are Frequently Overlooked

Corporate structure and financials tend to dominate the pre-IPO conversation, but several other workstreams deserve attention well before the offering date approaches.

• Board composition and governance: Public companies face expectations around independent directors, audit committees, and compensation committees. Assembling this governance infrastructure before filing avoids scrambling under a live regulatory clock.
• Internal controls: Sarbanes-Oxley Section 404 requires management to assess and report on internal controls over financial reporting. Firms that have not previously operated with formal controls frameworks will need time to design, implement, and test them.
• Securities counsel: Experienced securities attorneys are non-negotiable. They will draft or review the registration statement, manage SEC comment letters, and guide the company through the disclosure obligations that accompany public status.
• Investor relations infrastructure: Once public, the company must communicate regularly and compliantly with shareholders. Having a plan—and ideally a professional—in place before the offering reduces the operational shock of operating in a fishbowl.

For companies considering a public offering, the timeline from decision to trading is frequently longer than management expects. Working backward from a target offering date and mapping each preparatory milestone is an essential planning exercise. Our overview of the detailed steps for taking your company public walks through the full sequence. For those evaluating whether a public offering is the right liquidity strategy at all, the analysis in our piece on why going public is not always a good liquidity strategy is worth reading before committing to the path.

Regulatory Filings and Ongoing Disclosure Obligations

Going public is not a one-time event—it initiates a continuous compliance obligation. Public companies must file a range of periodic and event-driven reports with the SEC, including annual reports (Form 10-K), quarterly reports (Form 10-Q), and current reports for material events (Form 8-K). Officers and directors also face reporting obligations on their personal ownership stakes. Understanding these ongoing requirements before the offering helps management build the internal capacity to meet them without disruption to the core business. Our breakdown of required SEC filings for public companies provides a useful reference for what to expect post-listing. If you’re ready to begin mapping out your own transaction, you can prepare a transaction with a structured process designed for capital markets readiness.

Frequently Asked Questions

Why do all public companies need to be C-corporations?

C-corporation status allows for an unlimited number of shareholders and multiple classes of stock—both essential features for publicly traded companies. LLCs and S-corporations have ownership restrictions and structural limitations that are incompatible with the requirements of public markets.

What is a PCAOB audit and why is it required?

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for firms that audit public companies. An audit performed under PCAOB standards provides the SEC and investors with a level of assurance about the accuracy of the company’s financial statements. Companies must have PCAOB-compliant audits in place before their registration statement becomes effective.

How long does it typically take to prepare for an IPO?

The timeline varies by company, but most preparatory processes take anywhere from one to three years when accounting for corporate restructuring, financial statement preparation (often covering multiple years of audited financials), governance buildout, and the registration process itself. Companies that begin preparation earlier have more control over the timeline.