In my prior Blawg, I talked about the need for businesses to plan for the transfer of ownership, which can occur due to the retirement of an owner or other business disruptions using Next Generation Transfer and Employee Stock Ownership Plans.?[http://targ.staging.wpengine.com/business-succession-planning-esop/] Another option that may be the right choice for some businesses is a Public Offering.? A public offering will provide great advantages and the business can achieve remarkable growth from being publicly traded.? Other businesses, and especially those businesses that are not well prepared for public offerings, may benefit from the initial influx of cash but quickly depreciate or become unsustainable either from a lack of planned growth and marketing, exhaustion of market capital resources, or collapse under the burden of disclosure requirement and other rules and regulations.
A public offering is the sale of equity shares or other financial instruments to the public to raise funds.? Public offerings of corporate securities in the United States must be registered with and approved by the Securities and Exchange Commission (SEC).? Several benefits to going public include the influx of significant capital to underwrite ongoing business goals and provide a market basis for valuation of shares of departing owners, helping to facilitate businesses? succession plans.? The full process of going public is complex and requires commitment of the entire organization and advice from trusted professionals who understand the comprehensive end goals of the business.
Because public offerings require a management team prepared for substantial risks, the development and fostering of a corporate culture to prepare for such an undertaking, and significant expenditure of time and energy to execute the necessary growth, a public offering is often not realistic or feasible for business owners looking to retire in the near future. There are several alternatives to planning for the succession of a business and owners/managers should consider all options keeping the overall business goals and objectives in mind, including Sales to Third Parties, Liquidation, and Buy-Sell Agreements.
SMART TIP: ?Business Succession Planning is complex and should be part of a comprehensive estate and business plan developed after careful consideration and consultation with a team of professionals, including financial and legal advisors.