Preparing for an IPO: Governance must-haves for going public
Preparing for an IPO is an exciting time for any company. Not only does your personal net worth stand to skyrocket, but the business you worked so hard to build will join a chosen few, making headlines and earning its own ticker on the public markets.
Yet as visions of Bloomberg interviews and vested stock options dance in your head, it's more important than ever to mind the basics. This includes essential corporate governance frameworks and best practices. The path from startup to public company demands governance infrastructure that demonstrates operational maturity to institutional investors and regulatory bodies.
As your company moves from private to public, it will grow from having just a few owners to thousands of stockholders with detailed and stringent expectations, many outlined by law.
You'll need to not only comply with all rules and regulations associated with the IPO process, but also assure the world you have the right governance structures in place to safeguard stakeholder interests well into the future.
What governance structures should companies have in place before they go public?
Going public will require a team of legal, financial and regulatory advisors to wrangle a host of details. Getting these details right can also make your initial offering price higher, as investors share your confidence in your company's sound governance structures.
Your board of directors
Especially in today's business environment with growing risk and heightened activism, one place a regulator or investor looks first in a soon-to-be public company is the board of directors, who will be providing top-level strategic oversight.
Do you have the right people in place to make this oversight effective? Consider the following:
- Directors should represent a wide range of backgrounds and viewpoints: For many pre-IPO companies, this means expanding the leadership team that brought the company to this point.
- The board's expertise should reflect today's challenges: Across industries, this includes areas like cybersecurity, sustainability and AI.
- Most of the directors in your final board composition should be independent: In other words, not an employee of the company, like a CEO or CFO. This ensures objectivity and impartiality in oversight and decision-making.
Your board committees
For a public company, board committees aren't just a handy way to delegate. Many are required by law, and regulations like the Sarbanes-Oxley Act may require a certain proportion of independent directors in their membership.
There are three committees every public board must have:
- The audit committee, to oversee financial reporting independent of management (typically with a CPA or other financial professional among its members).
- The compensation committee, to manage how the many complex facets of executive remuneration are structured and administered, and to support the company’s goals.
- The nominating and governance committee (often called the "nom gov committee"), for bringing on new directors, ensuring board effectiveness, and administering an all-important succession plan.
Your executive leadership
To the people and institutions investing in a public company and the regulators overseeing it, the people at the top matter a great deal.
Among the CEO's responsibilities are overseeing company expansion, driving profitability and improving share prices, while the CFO manages activities from cash flow and financial planning to compliance and reporting. Make sure that responsibilities are clearly defined for these two critical roles, and that the people holding them have the expertise and skills needed for a public company.
As with the board, it's important to have a robust succession plan for key executives. This builds trust that the company will be well-positioned to obtain top talent and maintain institutional knowledge, and that shareholders will be unaffected by changes in leadership.
You'll also need a general counsel to lead corporate response on legal issues, along with a corporate secretary to ensure that the board has the resources to fulfill its fiduciary duties. In many companies, and especially as board oversight involves an evolving range of regulatory and legal frameworks, these two roles are combined and held by the same person.
What other best practices will shareholders and stakeholders expect?
In addition to a qualified board and executive leadership team, today's shareholders and regulators will also be looking for governance best practices, such as:
- A code of ethics that codifies principles, like those in the ISO 2600-2010 standard: accountability; transparency; ethical behavior; and respect for stakeholder interests, the rule of law, international norms of behavior and human rights.
- Whistleblower programs that encourage open communication and enable problems to be addressed internally.
- Consideration of the Caremark standard and business judgment rule to ensure that the full range of potential risks and issues is considered by the board.
- Ongoing director education to ensure directors remain informed on evolving governance practices and industry-specific knowledge.
What IPO requirements and regulations must companies comply with before going public?
The examples and guidelines below reflect requirements for companies going public on U.S. stock exchanges. Please keep in mind that this is not an exclusive list, and if your company is going public outside the U.S., you'll need to be familiar with the applicable rules and regulations for those exchanges and jurisdictions.
SEC registration
One of the first steps a U.S. company must undertake before going public is filing an S-1 registration statement with the U.S. Securities and Exchange Commission (SEC). Be sure to plan ahead and allocate adequate staffing and time for this task; you'll be required to provide detailed information about your company, including its financials, management and operations.
Financial reporting
Operating as a publicly traded company brings with it high expectations for financial reporting, starting with four letters: GAAP. You'll be required to prepare and disclose audited financial statements that conform to these Generally Accepted Accounting Principles. Be prepared to significantly amp up the time, resources and expertise you devote to financial reporting overall. Shareholders will expect a comprehensive view of your company's financial condition and performance.
Internal audit management software and continuous monitoring tools can help ensure your financial reporting is accurate, up to date, auditable, and always ready to surface for the board and relevant committees.
Quiet period
While you add more disclosures and reports to your to-do list, you'll also need to know the rules about when to stay quiet. To prevent unfair promotion or market manipulation during the time leading up to a public offering, pre-IPO companies must strictly limit statements and the release of information about their company from the time they file the IPO until 40 days after the stock starts trading.
Material events disclosure
Information and events are considered "material" when they could affect your company's financial condition or stock price. They include both positive and negative developments, and your company, as a publicly traded entity, must be prepared to disclose them in a timely manner.
Underwriting agreement
When companies like yours go public on a stock exchange, an underwriting group (often an investment bank) acts as an intermediary. The underwriting agreement outlines the details of this arrangement and the terms and conditions of the IPO, including:
- The number of shares being offered
- The price per share
- The responsibilities of each party
Shareholder voting rights
In a publicly traded company, certain stockholders are entitled by law to vote on issues impacting company performance, such as mergers and acquisitions, dividend payouts, new securities and elections of new directors.
You'll need to familiarize yourself with these shareholder voting rights, as well as mechanisms like proxy solicitations, where shareholders request an authorized party to vote on their behalf.
Insider trading and reporting
As a public company, you'll need to be conversant in and compliant with rules and reporting requirements related to insider trading.
This may include employee education and trading restrictions, an in-house "watchdog," or specialized technology for monitoring operations, flagging potential issues and responding appropriately.
Filing requirements
The paperwork doesn't end after your company goes public. Investors and the SEC will expect regular disclosures. Make sure your systems and staffing are equipped to file a Form 10-K each year, Form 10-Q each quarter, and Form 8-K documentation to disclose any material events.
Proxy statements
In the United States, the SEC requires publicly traded companies to file proxy statements before annual and special meetings. This is so shareholders can make informed votes in areas like new director elections, executive compensation and mergers and acquisitions.
A proxy statement can also be a powerful governance tool. Especially when combined with a market intelligence tool, preparation of these detailed documents can help you identify emerging risks early and prepare for activism or other shareholder pressures.
Sarbanes-Oxley Act (SOX)
Going public on a U.S. stock exchange also requires compliance with the Sarbanes-Oxley Act, lengthy legislation with numerous stringent requirements related to financial reporting, internal control assessments and whistleblower protections. It's a lot to oversee, and you may want to consider specialized software to make it easier to get contextualized data and customizable reports from your audit teams.
Dodd-Frank Act
Another act you'll need to familiarize yourself with, along with the terms "pay for performance" and "say on pay," is Dodd-Frank. Provisions within this act require your company to justify its executive compensation, in great detail, before each shareholder meeting.
This can be a highly involved activity consisting of extensive peer and market research, detailed benchmarking, and a specific format, table and metrics to follow for reporting. Executive compensation tools can help you stay ahead of compensation-related scrutiny and ensure compliance with Dodd-Frank.
Listing requirements
One essential area when preparing for an IPO: the listing requirements of the stock exchange where your company's shares will be traded. There may be specific criteria for your company to meet in terms of share price, market capitalization and so forth.
Fair disclosure (Regulation FD)
Enacted to combat insider trading, Regulation FD (the SEC's fair disclosure rule) prohibits the selective release of information to investment professionals and analysts. In both formal and informal communications, material information about your company must be shared with all investors at the same time.
From a governance standpoint, this means your company will need rigorous compliance and monitoring programs and guidance for key personnel, initiatives your board will need to oversee
Compliance with state securities laws
Once you've gotten up to speed on federal regulations for compliance, monitoring and disclosures, it's time to drill down further to see what's required at the state, regional and provincial level. Will you need to register to sell shares in a specific state? What kind of anti-fraud laws do you need to be aware of?
If your company crosses numerous jurisdictions or has a structure that is particularly complex, specialized entity management software can help you keep track of the details.
Anti-money laundering (AML) and Know Your Customer (KYC) regulations
Specialized software, including for third-party risk management and global due diligence, can also help you keep on top of another complicated and important compliance area: AML and KYC.
It's an investment you might want to consider well before your IPO. Behind these deceptively simple acronyms lurk a host of regulations related to sanctions lists, fraud, bribery, corruption and more, heightening investor scrutiny in areas like vendor management.
Cybersecurity risk management, strategy, governance, and incident disclosure (SEC)
The SEC adopted enhanced cybersecurity disclosure requirements in July 2023, which fundamentally changed the compliance landscape for public companies. These rules require current reporting of material cybersecurity incidents and annual reporting of company processes for identifying, assessing, and managing material cybersecurity risks, making Diligent's SEC Disclosure Readiness packages another worthy technology investment.
The package for cybersecurity includes:
- Cutting-edge software for the automated identification, assessment and remediation of IT and cyber risk
- A user-friendly dashboard that delivers a comprehensive view of risk
- Self-paced e-learning and certification for directors and management
AI-related disclosure requirements
The SEC has declared artificial intelligence "the most transformative technology of our times" while cautioning that public companies using AI must be honest about the role AI plays in their business and avoid exaggerating it to the point of "AI washing."
Companies must ensure that claims about AI prospects have reasonable bases and that these bases are disclosed to investors, with specific definitions of AI terminology used in business contexts.
The enhancement and standardization of climate-related disclosures for investors (SEC)
The SEC finalized climate disclosure rules in March 2024, requiring registrants to provide climate-related disclosures in their annual reports and registration statements, including those for IPOs, beginning with annual reports for the year ending December 31, 2025, for calendar-year-end large accelerated filers. The climate readiness package can help pre-IPO companies prepare in this area as well, offering:
- Carbon accounting software for climate data, including up to 80 audit-ready reports
- A risk management dashboard that brings performance data and market insights together into a consolidated view
- Self-paced e-learning and certification for directors and management
Professional governance infrastructure for IPO success
Building IPO-ready governance requires more than just establishing the right structures and processes. It requires professional infrastructure that demonstrates operational maturity to institutional investors and regulators.
Best-in-class governance platforms provide essential capabilities for IPO preparation:
- Automated document creation that produces institutional-quality board materials and regulatory filings that meet SEC standards
- Comprehensive compliance tracking that monitors regulatory changes and identifies potential issues before they impact IPO preparation
- Strategic meeting preparation that ensures board committees focus on critical IPO readiness topics rather than administrative catch-up
- Secure stakeholder communication that provides the audit trails and professional presentation that underwriters and investors expect
These capabilities become particularly valuable during the intense IPO preparation period, when companies need to demonstrate governance sophistication while managing the operational demands of going public.
Professional governance infrastructure signals to institutional investors that the company has moved beyond founder-led processes to enterprise-grade oversight capabilities.
Why is governance technology critical for IPO success?
If you're thinking that all of this seems like a lot to manage, you're absolutely right, and the governance burden will only intensify after going public. That's why governance technology has become essential infrastructure for companies preparing for IPO.
Professional governance platforms enable growing companies to:
- Get a comprehensive view of IPO readiness across all governance areas
- Collaborate efficiently during the intensive preparation period
- Make decisions based on current, auditable data
- Maintain secure communications throughout the process
- Deliver the professional materials that institutional investors expect
The investment in governance technology during IPO preparation pays dividends immediately through improved efficiency and continues providing value as an ongoing public company infrastructure.
Don't get caught unprepared by IPO complexity. Download our complete pre-IPO readiness checklist to ensure your governance foundation supports successful public market entry.
