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It is almost every business-owner's dream: The day when their company joins thousands of others in the public financial market. Unfortunately for many business owners, this dream may never become a reality, due to the stringent regulations placed on this process by the United States Securities and Exchange Commission.

Existing Hurdles

  • To become listed on the NASDAQ exchange, a company has to first pay a non-refundable $1,000.00 application fee, plus an additional $4,000 one time entry fee. Depending on the amount of shares the company wants to purchase, the expenses will grow from that. For less than one million shares, the entry fee is $25,525 with a $10,710 annual fee. For 10 million shares, the entry fee jumps to $70,625 with a $12,960 annual fee. Over 100 million shares requires the company to pay a $90,000 entry fee plus, the $50,000 annual fee.
  • To be listed on the New York Stock Exchange, companies must pay a one-time charge of $36,800, in addition to other high fees depending on how many shares are issued
  • Companies are aware these costs are unnecessarily high. Last year, 1,428 businesses filed complaints against the high fees! This was a 7% rise from 2002. Due to the high costs, 458 companies even filed for bankruptcy in 2003! This number also rose 8% from 2002.
  • In addition to all of these costs, small businesses spend a year of preparation on average to get ready for the public offering. This takes a significant amount of time away from normal operating activities. They are required to focus their energy, resources and time on shareholder information and legal obligations, and sometimes they lose sight of core competitive competencies, which is what brings them to the point of IPO (Initial Public Offering) in the first place.

    Reducing these fees would leave more capital for the company and in return more future economy growth. Granted, the process of joining the financial trading markets is a major step and not to be taken likely, but the fee structure and over-regulation has cost many business owners to forego their ambition of allowing the public to own their company. Once that happens, the small business benefits from increased capital. This is a desired action for most companies that are trying to grow, but high entry fees and yearly costs form a barrier that only few businesses are able to break

    What Can Be Done?

  • The Small Business Regulatory Enforcement Fairness Act was enacted in 1996 to help small businesses challenge enforcement they feel is unfair. Although this is a step in the right direction, powerhouses like the EPA (Environmental Protection Agency) and OSHA (Occupational Safety and Health Administration) have made progress difficult. Our economy is dependent upon these businesses' survival. The term “small entity” applies to nearly 93% of America's businesses. More growth of these businesses leads to more growth of the economy.
  • More programs must be implemented to encourage small business growth, either financially or in terms of advisory. One suggestion has been a financial loan or grant offered to businesses attempting to go public.
  • Larger corporations have a tendency to get more attention from Federal regulatory agencies than the small business community. This community needs access to those agencies, in order to make arguments against excessive hurdles in their growth path. The regulatory environment must be less punitive and more solution-oriented.
    The Securities and Exchange Commission must be able to enact similiar laws in order to stimulate growth. The ever-expanding bulge bracket securities firms have recently been involved in many scandals and abuses by high level executives.

    Not everyone wants to help the American entrepreneur

  • "The benefits outweight the costs. I small businesses can not shoulder such small fees, they should not be considering this step in the first place"
    Selling equity represents a permanent forfeiture of a portion of the returns associated with corporate growth. Raising equity capital in the public markets comes with large costs, such as the underwriting discount, plus other fees and expenses. Also, the answer to whether the benefits outweigh the cost cannot be realistically known until several years after an IPO. Not all companies can survive going public, but they always try their best to do so.

  • "The exchanges need to control the amount of new entries. High costs keep down the number of companies going public."
    The exchanges can afford to lower their costs. Many other outside factors contribute to the overall costs. The following is an example of a company selling $100 million in stock, with 20 million shares outstanding. They have decided to register on the NASDAQ exchange: $7,000,000 underwriting fees, $27,800 SEC fee, $10,500 NASD fee, $95,000 NASDAQ fee, $1,225,000 - 1,675,000 preparatory fees (legal, accounting, etc.) = $8.4 - $8.8 million total expenses

    Supporting Entrepreneurship

    Support to less stringent restrictions by the Securities and Exchange Commission for publicly-listed companies will mean support for the innovative, ambitious and entrepreneurial spirit which drives American business, especially small business. The appropriate Plan of Action would be to write to the S.E.C. and voice your complaints over the hampering of business activity. It is important that this commission, which is primarily concerned with dealing with larger business owners, can hear from the small business community and the average American who is simply making sure the the entrepreneurial path is still a lucrative one.
    Works Consulted:
    Do the benefits outweigh the costs of going public?. []
    NASDAQ Entry and Annual Fee Schedule. []
    SEC Investor Complaints and Questions []