Posted on: 18 August, 2004
Author: William Cate
The Cost of Being a Public CompanyBy William CateAugust 2004[http://home.earthlink.net/~beowulfinvestments/][http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]The Cost ... The Cost of Being a Public CompanyBy William CateAugust 2004[http://home.earthlink.net/~beowulfinvestments/][http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]The Cost of Going PublicThe average cost for a traditional U.S. Securities and Exchange registration and listing on the Over-the-Counter Bulletin Board (OTCBB) has risen to about $1,500,000 in 2003. If your company wants to list on Nasdaq, the cost will be an additional $500,000. Registration and listing costs have risen by about 30% in the past two years thanks to stock scandals that have significantly increased GAAP audit costs and increased regulatory compliance requirements that resulted from the Sarbanes-Oxley Act.The Reasons that the Costs of Being Public Have IncreasedSection 404 of the Sarbanes-Oxley Act addresses accounting control issues for U.S. Domestic public companies. Section 404 requires increased corporate responsibility and accountability. This means increased financial disclosure that results in increased audit and liability-insurance costs.Being Public in 2003The legal, accounting and other costs of being public rose to an estimated average of $2.86 million for OTCBB firms in 2003. Major public companies paid, on average, $7.41 million to trade on Nasdaq, AMEX and the NYSE, according to a survey by Foley & Lardner LLP.The Foley & Lardner 2003 survey breaks down the 2003 costs as follows:OTCBB Firms, which they call small public companiesDirector and Officer Insurance$850,000Accounting$824,000Legal$468,000Board Compensation$313,000Lost Productivity$160,000Other Sabanes-Oxley costs$100,000Governance Setup Costs$147,000TOTAL$2,862,000Nasdaq, NYSE, AMEX firms which they call large public companiesDirector and Officer Insurance$2,200,000Accounting$1,200,000Legal$ 841,000Board Compensation$ 247,000Lost Productivity$2,500,000Other Sabanes-Oxley costs$ 246,000Governance Setup Costs$174,000TOTAL$7,404,000Investor Relations CostsIn addition to increased compliance costs, public companies are faced with the ongoing obligation to find buyers for their shares. An OTCBB company with an effective float of one million shares and an average share price of $6.00/share should budget $1.2 million to maintain that share price for the year. A Nasdaq or NYSE company with an effective float of 2 million shares and an average price of $15/share should budget about $4.0 to maintain their share price.Three Solutions to Reducing Costs of Being a Public Company1. Grant Thornton International, an accounting/business adviser to midsize firms, reports a steady rise in the number of companies going private after passage of Sarbanes-Oxley. Most are OTCBB companies, with management buyouts as the preferred means of taking these firms private.2. Mergers of existing public companies have been the standard alternative to taking the company private.3. Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] advises both U.S. public and private companies to move offshore and structure themselves as foreign corporations. As a Non-U.S. Company, their registration and compliance costs will drop below $500,000. If the client companies follow the Beowulf Investments Investor Relations program, their costs should be below $100,000/year.The days for an American private company to go public as a status symbolare over. The SEC compliance costs will either force U.S. Domestic Companies to relocate offshore or preclude them from taking advantage of the money raising benefits of being a public company. For U.S. companies, it comes down to a choice between reduced access to capital or reduced jobs in the United States. I suspect that most CFOs will favor moving the jobs offshore to going bankrupt.To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/] Article Tags: Public Company, Public Companies, Compliance Costs, Beowulf Investments Source: Free Articles from ArticlesFactory.com