Public companies that also have a trading symbol (and its corresponding CUSIP #) can have shares trading in the “public float” as long as the appropriate SEC rules are followed. Unless the securities are exempt for some reason, all publicly traded securities must be registered with the SEC. A list of the items required by the SEC for the registration process is listed below. What precedes it is an outline of various financing and liquidity options/exemptions for shares that aren’t quite public. There are certainly exceptions to the rules for non-public shares, a few of which are outlined below.
Share Registration & Resale Registration
In the event that a shareholder needs to sell shares–most often for liquidity reasons–they can often have a resale exemption through Rule 144. In such cases, owners may not wish to wait long enough for the full public registration to apply to the stock in the public entity.
Under Rule 144 the public sale of the company stock can take place without full registration as long as said shares have been held for either one year or two, depending on several key components relating to the shares. This can greatly increase the speed with which the shares are able to sell, instead of being required to wait for full registration.
Another exemption is included is the bankruptcy exemption that allows the public resale of securities pursuant to a reorganization brought about by bankruptcy proceedings. Some firms like the Halter Financial Group have made their way in the world of Rule 144 exemptions when it comes to bankruptcy proceedings. Tim Halter and his group have used a number of techniques over the years for converting debt holders in bankruptcy proceedings into clean public shell equity holders. This does a number of great things for the shell and it’s creditors. First, it’s a simple way to appease the creditors in the exhausting of the defunct corporate debt. Second, it typically creates a larger pool of shareholders, perfect for a shell corporation that is looking for a reverse merger target. There can often be non-reporting issues with these types of shells and they can be tough to find, but the opportunity to make lemonade out of lemons in a public shell bankruptcy proceeding remains and the right practitioner can helpful in the process.
PIPEs are typically by their very nature unregistered, which is one of the key benefits of PIPE financing–it’s quick and easy to raise capital. Like most other securities, until the PIPE shares become registered or are somehow exempt from registration, they typically cannot be free-trading. Typically resale registrations are issued on PIPE deals within 90 days. It’s quicker and provides less regulatory oversight than secondary offerings.
Because investors in a PIPE transaction bear more risk in that they lack liquidity in the financing (at least in the short term), the financing is typically more expensive for the corporation and shares are generally sold at a discount to the general market. But when capital is needed, the financing typically makes up for the margin and investors that aren’t so risk averse or are comfortable with a particular deal like making a bit more spread as well.
What’s needed for your public offering “prospectus” sent to the SEC for stock registration:
Once submitted to the Securities and Exchange Commission, your company’s registration statement, including the prospectus and its associated schedules will be required to be reviewed by the SEC’s Division of Corporation Finance within 30 days. The SEC examiners will typically request more time for review and several impending iterations before the registration is considered registered and “effective.” Once accepted, registered and effective, the securities can then be publicly traded in the open market. What appears here is likely an overly simplified view of what can be a complex and iterative process in getting approval for trading, but it should paint a good overall general picture.