Tip of the Week: When does a self-filing make sense?

The following definition is taken from my book: a self-filing is the process by which a private company may seek a public trading market for its securities without an IPO or a reverse merger, by completing its own filings with the SEC either to resell securities held by shareholders or to voluntarily become a reporting company. The company assumes the obligation of filing quarterly and annual reports and becomes subject to proxy and other rules.

Self-filings can be attractive because they do not require a shell or need to wait on the IPO market; there are no problems associated with due diligence; and the company does not give up any of the company’s equity. When deciding to do a self-filing take a look at the following 3 questions.

1. Does the private company already have a large shareholder base?

* A company with a strong shareholder base reduces the need of a shell that already has shareholders and can be a good candidate for a self-filing.
* Self-filings can be easier than reverse mergers when the company has more than 35 shareholders who do not meet the “accredited investors” test.

2. Can the private company take care of its own financial needs during the lengthy self-filing process?

* Self-filings make sense for companies that can defer new financing until the process is complete. This could take anywhere from 5 to 8 months or in some cases even longer. This compared to an average of 3 months to complete a reverse merger with a shell.
* Whatever amount of time one thinks it will take to complete a self-filing, multiply that by 150 percent.

3. Does the private company have on tap a capable investment bank or Wall Street advisor to help “build” a public company from the private one?

* Members of senior management should have significant Wall Street experience, or the company should engage a capable investment bank or financial consultant to walk it through the process because of the “do-it-yourself” nature of self-filings.

No company should attempt a self-filing without a group on board that can build a team that is competent and works well together.

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