Current Environment Of Filing S-1's, 15c2-11's, And DTC Eligibility

So before we begin let's start by defining a few key terms:

• S-1 is a registration statement filing that gets submitted for examination and final approval by the SEC. Once approved the company can raise money based upon the terms set forth within the S-1 (i.e.) minimum/maximum of how much money can be raised, what price Shares will be sold, and how long the company could raise money post effectiveness of the S-1.
• 15c2-11 – After the company decides to close the Capital Raise pursuant to the S-1 Prospectus, a 15c2-11 Application form is submitted by a Market Maker on behalf of the issuer to FINRA. Once approved the company will be granted a ticker symbol.
• DTC Eligibility – In simple terms it allows a company to electronically trade. The application will need to be submitted on behalf of a DTCC participant clearing firm as a sponsor.

For those of you that are not familiar with the steps of getting a company listed using an S-1: you first need to get a S-1 (Prospectus) approved by the SEC, then find a Market Maker to file a 15c2-11, and then file for DTC Eligibility. After attaining DTC Eligibility, you need to get shares deposited with a broker and execute the first trade. As you will see reading further, all of this is much easier said than done!

Just preparing the S-1 can take close to 3 months in itself. As you will need two years of Financial Statements or from the company's inception, in order to get Audited Financials in the first place. Always assume that getting Audited Financial Statements will take longer than expected.

The S-1 Table of Contents

• Prospectus Summary
• Risk Factors
• Use of Proceeds
• Determination of Offering Price
• Dilution of the Price per Share
• Plan of Distribution; Terms of the Offering
• Management's Discussion and Analysis or Plan of Operation
• Description of our Business and Properties
• Directors, Executive Officers and Control Persons
• Executive Compensation
• Security Ownership of Certain Beneficial Owners and Management
• Certain Relationships and Related Transactions
• Description of Securities
• Shares Eligible for Future Sale
• Anti-Takeover Provisions
• Legal Proceedings
• Financial Statements

On top of preparing and filing this monster of a document, you then get reviewed by the examiner assigned to you by the SEC. SEC Examiners are very thorough and diligent in making sure the company's disclosures are adequate and proper. After 30 days, SEC comments should be received. The process of the comments and response period can go on average 5-7 times before getting the green light from the SEC.

Fast forward approx. 9 months from the day you started, and after all that hard work, the day has finally come and your S-1 is now finally deemed EFFECTIVE! Now you can finally raise Capital, right? Nope! Now you must file for Blue Sky applications within the appropriate States which you plan on raising Capital in. This will slow you down for about 60 days, or so.

The last step will prove the hardest: you still need to find a Market Maker to file a 15c2-11. There are currently a very limited number of Market Makers (only two that I know of) in the entire U.S. willing to file 15c2-11's with FINRA for start-up's and small emerging growth companies.

After investing all your time (16-24 months) and resources in Legal, Transfer Agent, Audit, Accounting, Blue Sky, and DTC Eligibility fees — ask yourself: would the resources of the company, mainly management's time, be better spent actually managing and growing the business rather than spending all of this time jumping through hoops in order to go public? If a faster, less burdensome legal alternative sounds ideal, then perhaps a Reverse Merger is for you.

""Red tape will often get in your way. It's one of the reasons I often carry scissors!""

— Richard Branson (Note: Branson's own company Virgin Galactic recently went public via a Reverse Merger)

The information provided in this blog post does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this blog are for general informational purposes only.