You’ve completed form 10, submitted it to the SEC, and answered all their comments. Now you have your “letter of effectiveness” from the SEC. What’s next?

Getting listed for trading on NASDAQ OTCBB

Even though closely associated, “going public” and getting listed are two different and distinct processes. That’s because the “public” part deals with establishing the “free tradability” of your stock under the U.S. federal securities laws, while listing on a national quotation service is more directly controlled by the Financial Industry Regulatory Authority or (FINRA).

The U.S. federal laws prohibit sales of corporate securities by issuers to the public, or resale of stock by stockholders, unless the issuer has registered the securities under the Securities Act of 1933. The prohibition is not absolute, however, leaving open certain “exemptions” from the registration requirement in certain circumstances. Issuers are permitted an exemption from the registration requirements (commonly called the “private placement” exemption) when (a) the securities are sold to only wealthy, sophisticated investors, plus a few other investors, and (b) there is no public advertisement or general solicitation with the offers and sales. This is the exemption that entrepreneurs typically rely on in the organization and early financing phases of the business.

Resellers are afforded a similar exemption (the “Section 4(1) exemption”) in cases of private resales that are not deemed to be an underwriting or involving a broker. In this context, “underwriting” is a vague concept, not specifically defined by the United States Securities and Exchange Commission. It has sometimes fallen to the courts of law to decide whether a particular resale transaction qualifies for the exemption.

To get FINRA approval for quotation, a company must show that a sufficient amount of a class of its securities is eligible for public sale or resale. There are a couple of ways the company satisfies this requirement. One way is to file a registration statement under the Securities Act of 1933. This includes, but is not limited to, the well-known case of the “IPO.” The latter term generally refers to the “first public sale” of stock by a company, but issuers are free to repeat the process of registering public offerings of stock any number of times to raise additional capital. In any event, once a registration statement becomes effective, all the shares so registered become “free-trading” and can be publicly sold (and resold) indefinitely, so long as the issuer continues to file its obligatory reports (e.g., 10-Ks, 10-Qs, etc.). A broker who underwrites a public offering will also arrange for listing of the company’s stock on a suitable exchange or national quotation service.

A company may, however, do a “self-underwriting,” sometimes called a Direct Public Offering (DPO). In these cases, the securities may qualify for NASDAQ Bulletin Board listing as well, depending on the procedures followed in the offering. Because there usually is no underwriting broker involved in these offerings, the company will have to take the initiative in applying for listing. The company must make an application through a Broker-Dealer who is a member in good standing of the FINRA, submitting the information prescribed by Rule 15c-2-11 under the Exchange Act in a form prescribed by FINRA.