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Pre-IPO Tune-Up – A 10-Point Inspection

Going public is always an exciting time for any company. The interest and optimism in the IPO market makes the prospect enticing. While the enthusiasm is understandable, making sure your company is IPO ready can be overwhelming. Particularly for stock plan administrators, the private-to-public transition impacts a lot of the work that you do: your equity program as a public company looks very different than it did when you were private. Knowing what elements to focus on during the transition can be helpful to streamline the process.  That’s why we want to share our 10-point IPO equity plan readiness checklist. Think of it as a 10-point vehicle inspection. Neglected maintenance can lead to more than just unexpected breakdowns and delays.  With this 10-point checklist, we will highlight key areas that prepared plan administrators focus on to help make the IPO process as smooth as possible. 

#1: Clean Up Your Cap Table: The cap table is arguably the most crucial data report for a private company, and is even more important when a company is starting the process of going public.  While it is common for companies to spread cap table duties among team members and external counsel, it is important to identify one, central record of the cap table and align all other equity data aspects to that record (as opposed to maintaining multiple copies or different versions).  Having all capitalization data accurate and in one place can help your team provide data and answer questions effectively. It can also assist with various data clean-up efforts, like tracking down paper certificates or verifying complicated transfers.

#2: Keep Plan-Related Employee Demographic Data Up-to-Date: When a company goes public and employees are able to execute transactions on the open market, the accuracy of demographic data needed for plan management activities (e.g., calculating tax amounts and distributing proceeds) is important.  As a company prepares to go public, it is important to establish clear and easy ways for employees to update their demographic data as it relates to their equity awards (e.g., within Shareworks).

#3: Maintain Accurate Contact Information for Other Key, Non-Employee Individuals:  Your equity plan involves more than just active employees; investors, consultants, and terminated employees are just a few examples of other non-employee roles that could be impacted by a public offering. At the time of an IPO, your company may have nearly a decade of history on your cap table and all of these holders will need access to their holdings post-IPO.  It’s important to ensure that you have updated contact information for these and other non-employee individuals. Having updated contact information on file will allow you to communicate instructions and announcements to these holders.

#4: Know the Details of Your New Award Types: The awards that comprised the equity program of a private company may be very different than what a company will offer once it’s public. Explore all of the mechanics of these new equity award types and how administration of these awards may change as a public company.  Are the taxable events different? What new exercise or release methods can you offer to employees? There is a lot of information to help you learn more about different equity methods and how they operate for public companies, available through different sources (e.g., legal and tax advisors, industry resources and organizations, the web, and information you can gain from your peers via networking sources). Discover as much as possible about potential awards early in the process, and it’ll save you some time later on once decisions are made about your new public-company award types.  

#5: Identify the Impact of Any Applicable Performance Awards: For a private company, a public offering can sometimes be an integrated part of any existing performance awards. If that’s the case for you and your company (you have performance awards that are triggered by an IPO event), start reviewing your forecasting reports to project the amount of awards that will be released or accelerated and plan accordingly (while ensuring data accuracy in the other areas mentioned above, like employee contact information and demographic information).

#6: Plan Your Equity Education Approach: Don’t hesitate to start education early!  Equity is a complicated topic and while you are heading toward an IPO, it is never too early to start educating employees on their equity as a private company and beyond.  You will notice a huge spike in employee questions as soon as rumors of an IPO hit the news.  By having webinars or written materials readily available for employees you can hopefully help answer questions before they arise. Companies going public often work closely with their legal counsel to craft these messages given the nature of the message and the regulatory considerations surrounding an IPO (including restrictions on when information can be shared and what can be said).

#7: Prep Your Transfer Agent/s: Along with your payroll and equity systems your transfer agent is another integral part of the IPO process.  Be sure you’re aware of what this group needs to know about your plans for going public, and that they’re ready for activity after the lock-up expires.

#8: Consider Your Executive Population and Their Equity Awards: When looking at your company as a whole from an equity perspective, employees are often categorized into two groups: broad-based employees and executives.  When reviewing plan rules and terms, companies often focus on their executive population, as restrictions pertaining to material, non-public information often apply to this group by virtue of their roles in the company. Certain executive may also be subject to Section 16 reporting requirements and short-swing profit rules.  Companies often work closely with both internal and external counsel to identify who these individuals are (e.g., Form 144 filers, Section 16 insiders, as well those as who will need or want to establish 10b5-1 trading plans) and educate them on what these new requirements mean, including the impact of not adhering to insider trading rules. Additionally, a company must also decide who will be in charge of the managing these filing requirements.

#9: Identify Any New Equity-Related Providers or Where a Provider Change Might Be Necessary: After you’ve identified what your new equity plan workflows may look like as a public company, spend some time exploring the products and services that exist in the market place that could help ease the burden on your workload.  These tools could include equity administration platforms, transfer agents, payroll systems, single sign on, etc.  Find the best solutions for your company’s specific needs, keeping in mind that the transition to a new provider can also add time to your targeted timeline.

#10: Ask for Help!: Going public is one of the most important events in a company’s lifecycle, not only for you as an equity plan administrator but also for your employees and their equity awards.  Don’t be afraid to seek out help as you prepare for and go through the process!  Apart from the bankers and counsel advising on the public offering itself, there are many consulting groups in the industry that specialize in topics such as cleaning up the cap table, preparing filings, and other advisory services.  One key advisory area is in taxation, as the new public transaction protocol can sometimes bring up new tax questions and issues as it relates to your equity program.

Unperformed maintenance can contribute to issues with your vehicle. Knowing that, you wouldn’t want to miss a scheduled oil change, tire rotation or battery check. So, when it comes to preparing for an IPO, refer to this 10-point equity plan inspection list to help you on your IPO journey.

Information made available by Shareworks by Morgan Stanley is for informational purposes only and does not constitute legal or tax advice. You should always consult with and rely on your own legal and/or tax advisor(s) as Shareworks does not provide legal or tax advice and the information is not tailored to the specific situations of your company or your employees. The information may not be current and is subject to change without notice. Shareworks makes no representations or warranties concerning the completeness or timeliness of the information for your purposes. Shareworks by Morgan Stanley services for public companies are provided by Solium Financial Services LLC and Morgan Stanley Smith Barney LLC, members SIPC, and their affiliates, all wholly-owned subsidiaries of Morgan Stanley. Shareworks by Morgan Stanley fund transfer services for private companies are provided by Solium Financial Services LLC.

CRC 3071322 (06/2020)