Direct public offering is the process of selling of a stock company to investors without involving a stock market listing, broker-dealer or an investment bank. In this case, you are marketing shares directly to your prospective investors.
DPO gives the investors a chance to buy in or opt out depending on the established terms. All through this process, the issuer of the offering still remains as the driver and makes all decisions on what procedure the process will follow.
How to get started?
Preparation and review
To make sure that your projections and your financial records are following the accounting principles, you have to hire a certified public accountant. Look for a consultant and a securities lawyer to guide you through the offering process.
This is where the issuers will decide on the type of securities they want to sell. At times, the issuers are forced to convert their companies to a different entity. The most important documentation is the Offering Memorandum.
Those documents prepared in the review stage are submitted to either the state or federal securities regulators. The documentation needed include the financials, supporting documents and Offering Memorandum. In case the regulators accept your proposal, you now can start selling your shares to investors.
Selling of the shares
After your offering is approved, you can now start advertising directly to potential customers. This is where any interested investor can invest in your company by buying shares directly from you the issuer. This process lasts for a period of about 1 year. However, you can renew the offer after the one year limit is over.
Different forms of direct public offering
There are very many ways you can use to conduct your DPO. The methodology you decide to choose should be based on your business wants and needs. As an issuer, you can choose to offer common or preferred stock, revenue sharing or debt securities.
Look for a professional to guide you on what mode you can choose to use. Here are the most common DPO types you will find in the stock market:
Rule 147/ intrastate exemption
This rule is based on the fact that if a particular offering is within the state lines and does not cross the state lines, then there is no need for federal regulators to be involved. Therefore, the offering should be left to the state government.
If you choose to use this strategy, make sure that you register with the state. This offering has no limit on how much money you can raise as an issuer. Provisions like caps and per investor contribution limits may vary depending on the state.
Rule 504/ small corporation offerings registration
This type of DPO is more flexible as compared to the intrastate exemption. It is limited having a cap of $5million. This form of DPO gives the issuer an opportunity to sell their offerings in more than one state. Issuers can also mix and match private and public offerings.
Just like the small offerings exemption, this form of DPO can cross state lines. It comes in two forms: the first one is a $25 million cap requiring no financial audit. However, you have to comply with the state laws. The second one has a $50 million cap and preempts the relevant state laws. However, this form needs a mini-registration with SEC and requires a financial audit of the company.