Taking a company public can be a real trial by fire
Stock markets may have their ups and downs, but they generally offer companies an attractive way of obtaining funds. Nothing causes quite so much excitement on the market as a new and interesting initial public offering (IPO) except, perhaps, what Balcerowicz or Greenspan have to say about interest rates. Before a company gets to that exciting stage of announcing an IPO, management must be prepared to roll up their sleeves to prepare for the big event. You will need to obtain no less than four decisions before your stock may be listed on the Warsaw Stock Exchange (WSE).
The first step for any company going public is to go to the Securities and Exchange Commission (SEC) to obtain a permit for the admission of shares to public trading. This step is one of the most difficult, costly and time consuming in the whole IPO process. You will need to submit an application to the SEC for the permit through a brokerage house or a bank conducting brokerage activity. One of the appendices to this application is an issuance prospectus. Without going into the gory details of the information you will need to disclose, suffice it to say that you will need the assistance of your lawyers, the brokerage house and your accountants.
After you complete the typically several-hundred-page prospectus and submit the application, somewhat difficult proceedings before the SEC await you. The SEC carefully analyzes the entire application, including the prospectus. The proceedings involve sub-committees, which serve as a vehicle for the SEC to voice its comments and questions regarding the information in the prospectus. The SEC's questions should be addressed either in the prospectus or clarified during the proceedings. The prospectus may then undergo further revisions in response to their comments.
Formally, the SEC has two months to issue its decision. In the event of any problem with an application, however, the proceedings may be more lengthy. Assuming that your application and additional explanations are satisfactory, the SEC will issue a decision on the admission of your company's shares to public trading.
From the moment of the SEC's decision, your company becomes a public company. As a consequence, your company now must comply with all securities law standards, including the various information and reporting requirements placed on public companies. Similarly, once your company's shares have been admitted to public trading, your firm should apply for admission of each subsequent share issue.
If all (or part of) the shares that are to be admitted to public trading are new shares to be created pursuant to a share capital increase, you will need to register the new shares with the National Court Register (KRS). As the KRS just came into existence on Jan. 1, potential difficulties lurk at this stage, too. In my last article, I discussed some of the procedures for re-registering with the KRS. To avoid repeating myself, I will assume that you have memorized my last article and, therefore, managed to register your share capital increase in the KRS.
Awaiting you next are the proceedings before the National Deposit for Securities (KDPW). The KDPW is responsible, among other things, for the registration of shares admitted to public trading, facilitating the fulfillment of public companies' obligations toward shareholders, and settlement of stock market transactions. To register your company's shares with the KDPW you must file an application to become a participant and for registration of your company's shares with them. Once your company becomes a KDPW participant, it must comply with their rules and various resolutions adopted by the management board.
Completion of proceedings before the SEC and the KDPW entitles your company to advance to the final steps before listing your company on the WSE. In other words, it is time to apply to the supervisory board and the management board of the WSE. The proceedings are divided into two phases: admitting the shares to trade on the exchange and listing the shares for quotation.
The WSE supervisory board may admit a company's shares to trading on the WSE if the following conditions are met:
The SEC admits the shares to public trade.
The shares are freely transferable.
The value of the shares to be admitted is at least zl. 4 million ($1 million).
The book value of the issuing company is at least zl. 4 million ($1 million).
The company has provided the information required by WSE regulations.
Once the WSE supervisory board approves the admission of shares to trading on the WSE, you may then file an application with the WSE management board for listing the shares for quotation. In the application you must choose one of the three markets for listing your company's shares. You may choose among the main, parallel or free markets. From a legal standpoint, the markets differ in the scope of requirements imposed on a company.
Once the management board of the WSE approves by resolution the listing of a company's shares for quotation on a particular market, you may congratulate yourself for your hard work and stand back to bask in the glory of a (hopefully) successful IPO. As progressive management does not rest on its laurels, you may now start to think of how to benefit from your company being listed on the WSE.
This article has been prepared by Lejb Fogelman, the managing partner of Hunton & Williams' Warsaw office, with the assistance of Rafal Sienski, an associate attorney.
