Time and Expense
- The IPO offering process is time-consuming, distracting and costly. Senior executives spend valuable time working with the Company's lawyers and investment bankers on organizing records and preparing the financial documents.
- The actual offering process typically takes five to six months to complete.
- The costs of an IPO include underwriter fees, listing fees, legal fees, accounting fees and a variety of miscellaneous fees. A Company raising $50 million on Nasdaq should expect to pay over $5 million in fees.
Corporate Compliance and Regulations
- Many jurisdictions have responded to perceived investor fraud the likes of Enron and WorldCom by ramping up regulatory oversight of corporations.
- Reform legislation, such as the Sarbanes-Oxley Act, is designed to improve companies by limiting certain types of transactions, increasing the scope of public filings and making officers and directors more accountable for their actions.
- The additional compliance obligations mean that executives must spend a substantial amount of time focused on corporate governance issues.
- Once a company goes public in the U.S., there is an increased risk that the Company and its officers and directors will be sued for securities violations.
- Most troubling are class action securities fraud lawsuits which are brought on behalf of an entire class of investors following unexpected stock price drops. Such litigations may take years to resolve and are so costly that the most efficient resolution for most companies is a major settlement.