Important board and stockholder mattes to consider before going public include:
- Review registration rights, if applicable.
- Analyze post-IPO status of stockholders’ agreements and other restrictions on stock voting and transfer.
- Investigate director and officer insurance alternatives. Once a company is public, a private company D&O insurance policy is no longer appropriate.
- Develop a business plan for use of IPO proceeds.
- Develop a plan for post-IPO board composition.
- Set up company policies: insider trading rules, a disclosure policy, and a communications policy.
Your current charter and bylaws, as well as other corporate documents, may contain provisions that could impact your IPO. Review key provisions, including:
- Who has registration rights?
- Are any special approvals required from stockholders or third parties?
- Will your preferred stock automatically convert upon an IPO?
- Are all stockholders and other equity holders required to sign 180-day “lock-up” agreements with your investment bankers, and are any holders expecting special IPO lock-up rights based on their Investor Rights Agreement?
- Capitalization records should be updated to document all stock issuances, transfers, and cancellations, warrant issuances, exercises, and/or cancellations.
It is important to keep in mind that the liability directors and officers face significantly increases once the company is public. Post IPO securities litigation is rampant and insurance premiums have never been higher.