Question

• Describe an IPO and apply the concept to an actual corporation
• Distinguish among different types of corporations
• Explain how the SEC regulates this process

Answer 1

IPO means Initial Public Offering. It is a process by which a privately held company becomes a publicly traded company by offering its shares to the public for the first time. A private company, that has a handful of shareholders, shares the ownership by going public by trading its shares. Through the IPO, the company gets its name listed on the stock exchange.

Example:Alibaba Group (BABA) has been the headline leading IPO of the year 2014. The Chinese e-commerce company initially priced its shares at $68 a piece to raise $21.8 billion. They raised the money by issuing their shares in the public.

Types of Corporations:

General Partnership

A General Partnership is composed of 2 or more persons (usually not a married couple) who agree to contribute money, labor, or skill to a business. Each partner shares the profits, losses, and management of the business, and each partner is personally and equally liable for debts of the partnership. Formal terms of the partnership are usually contained in a written partnership agreement.

Limited Liability Company (LLC)

A Limited Liability Company (LLC) is formed by 1 or more individuals or entities through a special written agreement. The agreement details the organization of the LLC, including provisions for management, assignability of interests, and distribution of profits and losses. LLCs are permitted to engage in any lawful, for-profit business or activity other than banking or insurance.

Sole Proprietorship

A Sole Proprietorship is one individual or married couple in business alone. Sole proprietorships are the most common form of business structure. This type of business is simple to form and operate, and may enjoy greater flexibility of management, fewer legal controls, and fewer taxes. However, the business owner is personally liable for all debts incurred by the business.

Joint Venture

A Joint Venture is formed for a limited length of time to carry out a business transaction or operation.

Limited Liability Limited Partnership (LLLP)

A Limited Liability Limited Partnership is a Limited Partnership that chooses to become an LLLP by including a statement to that effect in its certificate of limited partnership.

Nonprofit Corporation

A Nonprofit Corporation is a legal entity and is typically run to further an ideal or goal rather than in the interests of profit. Many nonprofits serve the public interest, but some engage in private sector activities.

ROLE OF SEC IN IPO

• The Securities Act requires your company to file a registration statement with the SEC before it may offer its securities for sale. Your company may not actually sell the securities covered by the registration statement until the SEC staff declares the registration statement "effective."
• Once your company's registration statement is “effective,” the company becomes subject to Exchange Act reporting requirements. Even if your company has not issued securities under a registration statement declared effective by the SEC, it could still become a reporting company and be required to file a registration statement under Section 12 of the Exchange Act.