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The End of the Traditional IPO?

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The chairman of the Securities and Exchange Commission says her agency is considering whether to ease rules on private companies that issue shares.

Private companies like Facebook or Twitter can keep their finances secret if they have fewer than 500 shareholders. If they have more, generally speaking they must open their financial books to the public.

One company/marketplace for private investments is SharesPost, with companies like Facebook, LinkedIn, Twitter and many others offered. CEO David Weir:

"We are encouraged that the SEC is considering modernizing existing regulations that are constraining private companies' ability to efficiently raise attractively priced growth capital," SharesPost CEO David Weir told Press:Here.

SEC Chairman Mary Schapiro says in a letter to a lawmaker that she asked the SEC staff to review those restrictions. The changes might make it easier for companies to raise money by issuing stock, without facing costly reporting rules imposed onpublic companies.

Further, the new rules might replace the process by which technology companies and other startups offer shares publicly through initial public offerings. Companies that have IPOs must disclose financial details about themselves.

Professor of Finance in the Leavey School of Business at Santa Clara University told Press:Here via email:

The SEC should stay out of the business of protecting people from themselves and not come in the way of companies trying to raise capital they need to grow and create jobs. If Facebook is trying to sell a stake in the company in the private marker and the number of shareholders exceed 500, who is it hurting? Even if the little investor needs to be protected, she(he) is not one of the investors in Facebook. In any case, what is so sacred about 500 shareholders - why can that not be 1000, or 5000? So this move is in the right direction and it will give companies the flexibility to use the optimal way to raise capital and face the rigors of being a public company only when they are ready.

 


 

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