Expand My Business

 Going Public 

Issuing shares or stock, often called "going public," allows an existing company to raise money by offering a fraction of ownership in the business. Shares usually have a set face value, and are viewed as securities by creditors since they pool financial risk among shareholders. Both issuing and buying stock are complicated processes which have legal and tax implications. It is highly recommended that you consult an attorney and financial advisor to determine if your company is ready to enter the public market

Federal Laws and Regulations

There are two key federal laws that affect companies that wish to offer shares to the public: the Securities Act of 1933 (Securities Act), and the Securities Exchange Act of 1934 (Exchange Act).

Securities Act

Under the Securities Act, a company is required to give investors full disclosure of all material facts that investors may find important when deciding when and where to invest their money. This information is included in a registration statement that must be filed with the US Securities and Exchange Commission (SEC).

Exchange Act

The Securities Exchange Act regulates the trading of securities after the initial offering, or trading, of a company’s shares. Much like the Securities Act the Exchange Act includes requirements on public disclosure of information to potential buyers.

Basically the Securities and Exchange Act protects two basic principles:

  • Companies publicly offering securities for investment must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing.
  • People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors' interests first.

At the Federal Level, the US Securities and Exchange Commission enforces the laws on how investments are offered and sold in the US.

State Regulations

The Securities Division of the Kentucky Department of Financial Institutions regulates securities activities in Kentucky. The industries and individuals for which the Securities Division has oversight include:

Besides registering securities offerings and the people who sell them, the Securities Division examines firms and individuals and investigates complaints and suspicious activity.

Required Registrations and Reporting

US Securities and Exchange Commission

Once you have consulted an attorney and a financial advisor and you are ready to issue securities to the public, you must file a registration statement with the SEC.

Registration statements have two principal parts:

  • Part I is the prospectus, the legal offering or "selling" document. This should include the important facts about its business operations, financial condition, and management. Everyone who buys the new issue, as well as anyone who is made an offer to purchase the securities, must have access to the prospectus.
  • Part II contains additional information that the company does not have to deliver to investors. Anyone can see this information by requesting it from one of the SEC's public reference rooms or using available searches on the SEC Web site.

The registration statement is available immediately to the public. However, until the SEC staff declares your registration statement “effective,” you cannot actually sell the securities covered by the registration statement. The SEC does not evaluate if the securities offered are "good" investments. The SEC staff reviews registration statements and declares them "effective" if companies satisfy the disclosure rules.

You must also file additional registration forms with the SEC. There are several registration forms available based on the amount of money you want to raise and the size of your company. The SEC S1 Form is a general registration that can be used by all businesses; for small businesses, general registration can also be completed by filing an SB1 Form (allowing a business to raise $10m or less) or a SB2 Form (allowing the business to raise money in any amount).

The SEC has created an online tool to assist you in filing your initial registration statement and necessary forms and in making your subsequent required annual reports. EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are required by law to file forms with the US Securities and Exchange Commission (SEC). You can also contact the SEC Ombudsman at (202) 551-3460 or you can visit the SEC website for more information on EDGAR.

Offerings that are determined to be exempt from federal securities laws may still be subject to Kentucky laws and regulations. Make sure you check with the Securities Division of the Kentucky Department of Financial Institutions (DFI) before proceeding with your offering.

Kentucky Department of Financial Institutions

In addition to filing with the Securities and Exchange Commission, you must also register with the Securities Division of the Kentucky Department of Financial Institutions (DFI) in order to sell securities in Kentucky.

Financial Industry Regulatory Authority (FINRA)

FINRA is the largest independent regulator for all securities firms doing business in the United States. FINRA's mission is "to protect America's investors by making sure the securities industry operates fairly and honestly." Any person associated with a member firm who is engaged in the securities business of the firm‐including partners, officers, directors, branch managers, department supervisors, and salespersons‐must register with FINRA.

The North American Securities Administration Association (NASAA)

Kentucky is a member of the NASAA, the "voice of state securities agencies responsible for efficient capital formation and grass-roots investor protection." The NASAA’s mission is to protect consumers of securities and investment advice. NASAA members license firms and their agents, investigate violations of state and provincial law, file enforcement actions when appropriate, and educate the public about investment fraud. Through the association, NASAA members also participate in multi-state enforcement actions and information sharing.

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