Issuer Consulting Blog

Running a public company is an excellent way to build capital, expand a business, and position a company for growth. However, it also carries with it a unique set of responsibilities and obligations that must be met to remain compliant with government regulations and ensure success. As the CEO or CFO of a public company, it’s vital to understand what you need to do to run your company and comply with all applicable rules and regulations, whether you’re raising money as a new business or becoming public.

But, how can you get started if you’ve just transitioned from a private to a public company? If you’re wondering how to run a public company, below are some tips to help you get started so your investors remain confident in your company and you remain compliant.

Hire an Attorney

A lawyer with experience in corporate law and public offerings is vital if you’re unsure of the legal regulations behind your company. For instance, you might have taken part in a reverse merger and will now need help from an attorney to make sure you are compliant with securities laws. Not having help from an attorney, either in-house or outside the company, can be a major risk. Fortunately, corporate lawyers are available to guide you through the process. Some of the many tasks a lawyer can help you undertake include:

• Creating contracts and corporate documents
• Preparing registration statements to file with the SEC
• Submitting and responding to SEC comments
• Conducting due diligence for investors
• Provide advice on disclosure requirements
• and more.

Engage an Auditor and IR Firm

Auditors and IR firms play a key role in providing essential services to your public company. Your auditor will be responsible for assessing the accuracy of your financial statements, while an IR firm will help you create and execute a comprehensive investor relations program that includes communications with existing shareholders and potential investors.

When looking for an auditor, consider a firm that specializes in public companies. This will ensure they have the experience and knowledge to help you remain compliant with applicable regulations. Additionally, look for credentials such as CPA/CFA certification, and make sure they have in-depth knowledge of accounting regulations, including Generally Accepted Accounting Principles (GAAP).

Likewise, when looking for an IR firm, consider one that has experience working with public companies. They should be able to devise strategies to help your company raise capital through equity offerings or debt financing and will keep you informed on changing regulations. Also known as Financial PR firms, investing in help from an IR firm can give your company more visibility, helping you to attract and retain investors.

Keep Detailed Records

One of the most crucial steps for running a public company is keeping detailed records of transactions. Your financial statements, SEC filings, and audits must be accurate and up-to-date, so you should create an organized filing system that allows for easy access to all relevant documents. As a CEO or CFO, you might have difficulty keeping track of all financials and will need to build a team of competent financial professionals who can help with the day-to-day operations.

Stock transfer agents are also important for ensuring shareholders’ records are up-to-date and can be consulted for stock transactions. Additionally, it’s important to track company stock trading and ensure your executives understand the rules around insider trading so they don’t run into any issues. Establishing a quiet period where no insiders can buy or sell stock is also an important step to help avoid any legal issues.

Follow Regulations

Finally, it’s essential to stay updated on the latest regulations so you can remain compliant with all applicable laws. The SEC is responsible for regulating public companies and making sure they comply with U.S. securities market laws. To make sure you don’t run into any complications, research and keep up-to-date on new regulations and be aware of any changes that may impact your business.

In addition to laws and regulations by the SEC, there are other key changes you’ll need to stay on top of. For instance, NASDAQ’s new diversity rules require listed companies to submit annual disclosures on their board composition, including the gender and racial makeup of their directors. Other changes may include new regulations around corporate governance or environmental protection standards. Having an internal team that can help you stay informed and up-to-date on any changes will ensure your company doesn’t run into legal issues.

Final Thoughts

Running a public company is no easy task — it requires strategic planning, strong internal teams, legal and financial expertise, and staying abreast of the ever-changing securities laws. With the right knowledge, guidance from corporate advisors, and a thorough understanding of the regulations, your company can be managed successfully.

Doesn’t the title of this article remind you of the famous idiom, “digging your own grave”? I personally think this is fitting because it takes a lot of effort, time and patience to get a company listed on the stock exchange, and only seconds later to have it all come crashing down. Sometimes situations like these are unavoidable considering the nature of the industry, stock market, economic forces, and other factors that go into running a successful public company.

With that said, we’ve compiled a list of the seven most important factors in determining if a public company will be successful:

1. Ethical Standards:

Yes, this makes the top of the list! These are essential ground rules that companies must follow to maintain trust from customers, financial analysts, suppliers, investors, regulatory agencies, and exchanges. When a company goes public, it means there are more stakeholders, and you have to try to keep them all happy. United Airlines stock dropped $1.4 billion after its security officers forcefully dragged a passenger off an overbooked flight. A soft apology from the CEO was not enough to woo the customers who were looking forward to hearing more about better customer service.

2. Accounting Standards:

Public companies have to keep growing to retain investors, but it appears that they sometimes forget that growth doesn’t mean fabricating figures. It is similar to your child failing a math test and changing the teacher’s grade from an F to a B. Yes, he is a genius, but only until the teacher doesn’t call to tell you about it. The Discovery of the hidden liabilities of Enron is a comparable situation here. The company kept showing itself to be making profits even though it was hemorrhaging cash. Another recent example of fabricated sales is Luckin coffee that has left a bad aftertaste and is now struggling with a share plunge of 81%. Well, you can’t expect a tip if you don’t serve your customers well. Also, it looks like accounting scandals are a favorite of the public companies with other examples, including telecommunication companies, MCI, Inc., previously known as Worldcom and HealthSouth Corporation, a healthcare company.

3. Data Breach:

You will not allow someone inside the house, knowing the person is a thief. Data today has become very expensive, and any company that deals with public data must ensure the highest safety standards. Credit reporting agency Equifax and social networking site Facebook could not escape neighborhood watch, and the news of data compromise came to limelight with both companies badly losing on the stock market.

4. Environment:

Going big comes with additional responsibilities, and no company can ignore them. So, whether the BP spilled 3 million barrels of oil into the Gulf of Mexico or Volkswagen cars emit high levels of poisonous nitrogen oxides, they had to bear the brunt by paying huge fines and consequent stock market losses.

5. Product Recall:

In the year 2019, two giant product manufacturing companies Johnson & Johnson and Apple, had to go through the embarrassment of re-buying their products. FDA discovered traces of asbestos (cancer-causing mineral) in Johnson & Johnson baby powder as a result of which the company is now under 15,000 lawsuits. Apple, the tech giant, had to sell battery replacements at much lower prices after facing allegations for the slowdown of their older models. I am still wondering if my mother did right using the baby powder on me?

6. Top Management:

Never underestimate the power of social media and an excellent reputation. Perhaps Elon Musk is yet to learn that as he continues to top the charts with his controversial tweets. He faced a defamation case in 2018 on his “pedo guy” tweet and a lawsuit on taking Tesla private, which had Tesla’s shares slowed down.

7. Frauds:

The health industry seemingly aces this category with examples including health insurance giant, Cigna, that artificially inflated medical costs, Turing Pharmaceuticals artificially increasing the value of the life-saving drug Daraprim by 5,000% and another pharmaceutical company, Mylan, boosting prices by 400% for its EpiPen auto-injector.