Once a privately held company issues shares of stock to the public—through an initial public offering (IPO), for example—it incurs a number of new responsibilities related to investor relations and reporting requirements. Also known as "going public, " an IPO transforms a small business from a privately owned and operated entity into one that is owned by public stockholders. An IPO is a significant stage in the growth of many small businesses, as it provides them with access to the public capital market and also increases their credibility and exposure. Becoming a public entity involves significant changes for a small business, though, including a loss of flexibility and control for management. "Along with fresh infusions of capital come the shareholders who invest in them. Now the company has a large number of new owners who want to see their CEO and their company perform, " David P. Sutton and M. William Benedetto wrote in Initial Public Offerings: A Strategic Planner for Raising Equity Capital. "The CEO may have 1, 000 or more new bosses overnight."

Public companies must comply with all the rules and regulations set forth by the Securities Act of 1934, not only during the IPO process, but also afterward. Small business owners who take their companies public must comply with regular reporting procedures required by the Securities and Exchange Commission (SEC). In addition to the periodic reports known as 8A, 10K, and 10Q, public companies also must issue annual reports, quarterly reports, proxy statements, and press releases in order to keep shareholders, financial analysts, and regulatory agencies informed of their actions.

Form 8A is the main form for registering a stock issue with the SEC. It must be filed if the shares will be traded on a major stock exchange (NYSE, AMEX, or NASDAQ), if the firm will have more than 500 shareholders, or if it has more than $3 million in assets. Companies that register their stock offerings using Form 8A must also file periodic reports until they no longer meet the aforementioned requirements. These updates are an important means of communication with shareholders, who use the information in making investment decisions.

All public companies are required to file Form 10K annually within 90 days of end of their fiscal year. This form requires disclosure of the company's audited financial statements, a summary of operations, a description of the overall business and its physical property, identification of any subsidiaries or affiliates, disclosure of the revenues contributed by major products or departments, and information on the number of shareholders, the management team and their salaries, and the interests of management and shareholders in certain transactions. The idea of Form 10K is to update on an annual basis the information that the company provided for its initial filing.

Form 10Q, which must be filed within 45 days of the end of each of the first three quarters in a company's fiscal year, includes audited financial statements with management discussion, as well as details of any corporate events that had a significant impact on the company. Another important reporting requirement is Form 8K, which discloses major changes in corporate control or assets due to such events as mergers, acquisitions, or bankruptcy. Several other types of filings are required for specific events, such as a significant increase or decrease in the amount of outstanding stock, or distributions to shareholders in the form of stock splits or dividends. In addition, public companies are required to inform stockholders of impending meetings or votes and send out proxy statements. Finally, insider trading laws require that public companies disclose any changes in the holdings of managers or directors who own more than 10 percent of the company's stock.

The most recent rule governing dissemination of information to investors is the so-called Fair Disclosure Regulation, enacted in 2000. This rule stipulates that companies have to broadly and publicly disseminate information through means (such as news releases, Web sites or Web casts, or SEC filings) that are equally accessible to all investors, instead of distributing information selectively to certain analysts or investors.

In addition to SEC reporting requirements, public companies also face the responsibility of maintaining good investor relations. Although it is not legally required, it is nonetheless important for public companies to establish systems to deal with stockholders, financial analysts, the media, and the overall community. "A key responsibility of management, over and above filing all necessary reports, is to keep the company name in front of investors, " Sutton and Benedetto noted. "Remember, the only way to have a rising stock price is to have more buyers than sellers. That means more than just increased earnings. It means investors, both current and prospective ones, must know about the company."

It is therefore vital that interested outsiders are presented with a complete and accurate picture of what is happening within the company. In some cases, this may entail obtaining the services of a public relations firm that specializes in investor relations. Such firms can guide newly public companies through the maze of information that they must disseminate. In addition, many smaller companies with limited resources will utilize the services of outside consultants who can help them meet their goal of providing full, accurate, and accessible information for disclosure to investors. Companies who decide to pursue this route should consider the following when selecting a consultant:

Reputation. References, qualifications, and experience of prospective investor relations firms should be closely examined.

Methodology. Consultants have different methodologies, strategies, and philosophies, and it is the small business owner's obligation to research these variables and determine which firm is the best fit for his or her own company.

Compensation structure. Investor relations consultants maintain a wide array of compensation and billing structures. "Understand how the billing is done, how expenses are allocated, and what services the company will receive, " counseled Michael Noonan in Houston Business Journal. "Clearly identify the terms and responsibility for each party and put the deal in writing." At the same time, companies seeking assistance in this area need to undertake a frank appraisal of their own budgetary constraints.


Arkebauer, James B., and Ronald M. Schultz. Cashing Out: The Entrepreneur's Guide to Going Public. HarperBusiness, 1991.

Noonan, Michael D. "Proper Investor Relations Plans May Require Outside Consultants." Houston Business Journal. September 15, 2000.

Roberts, Holme, and Harold A.S. Bloomenthal. Going Public Handbook. Clark Boardman, 1991.

Sutton, David P., and M. William Benedetto. Initial Public Offerings: A Strategic Planner for Raising Equity Capital. Probus, 1988.

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