The Importance of Legal Services in the IPO Process
When beginning the journey of taking your company public, it is a true, hard fact that you will need good legal counsel in order to be successful. It is a multi-dimensional process with many areas to cover; if one aspect is overlooked, the consequences could be devastating. Expect legal and professional fees to be a significant ongoing cost, but well worth it.
Your legal counsel will be responsible for:
- Preparing, filing and completing the listing application
- Providing guidance on the risks and regulations of the IPO transaction, including publicity and disclosure
- Providing guidance on the roles of the key regulatory players, the exchange listing and securities rules
- Helping to ensure that everything is checked and verified and that no issues will expose the business to claims after the IPO
During the IPO process and every quarter thereafter, you will need to accurately answer the question, “What is the legal spend or accrual for this quarter?” Create a monthly, repeatable process to track each invoice by law/consulting firm. Finance will need this information on a quarterly basis for accruals, so start practicing now. Get in the habit of doing this so that you are ready when it’s time.
Start thinking now about contracts management for due diligence. Are your documents organized? Ask around for referrals on a contracts management tool that fits your business needs. For an IPO or any due diligence, the underwriters and bankers will ask about the top contracts and indemnity clauses. There are online resources that you can use like the Corporate Executive Board (CEB) and American Corporate Counsel. The CEB has plenty of good data, model forms, and policies. It’s useful to be able to compare or mirror what others are doing.
It may be beneficial to have a global code of conduct. This way you can have one source document and then translate it to local languages instead of creating supplements. How will you keep good board minutes? Board minutes? Yes, you’ll need to get in the practice of documenting your board meetings. In the beginning, many companies use their outside counsel to do this, but as the company grows, you may be able to transition that function to in-house. Again, I promote being proactive. Look at your current change in control provisions and consider revising them before the IPO; change in control provisions will be more difficult after the IPO. This helps management in recruiting talent that could possibly help your IPO process. It could be a win-win situation by reviewing now.
As much as we all hate to admit it, we need the lawyers because they will be thorough and help to ensure a smooth IPO. It is by far a better choice to do all of your due diligence with the necessary legal, contracts management, and planning rather than to run into avoidable pitfalls later.