James R. Balmforth: Terms To Know If You’re Going Public

Below are definitions of business terms commonly associated with going public.

Agent. A person who buys or sells stocks for the account and risk of another person. An agent undertakes no financial risk and receives a commission for his/her services.

American Stock Exchange (AMEX). An open auction market where buyers and sellers of securities trade in a centralized marketplace. The AMEX typically lists small to medium cap stocks of smaller or younger companies.
Articles of Incorporation. A document filed with the secretary of state of a state which sets forth certain required information about the corporation.

Balance Sheet. A listing of a company’s assets, liabilities and net worth as of a fixed point in time.

Blue Sky Laws. A popular name for various state laws the purpose of which is to protect the public against securities fraud.

Board of Directors. A group of individuals, elected by the shareholders of a company, who oversee the management of the company.

Broker. An agent who acts as an intermediary between a buyer and a seller of securities. A broker receives compensation in the form of commissions.

Business plan. A written document that describes a business, its objectives, strategies, market ,and financial forecast.

Capital. Monies invested in a business enterprise.

Capitalization. The total amount of various securities issued by a corporation.

Cash flow statement. A charting of sources and uses of cash of a business.
Certificate of Incorporation. A certificate issued by the secretary of state of a state indicating that a corporation’s articles of incorporation have been accepted for filing and that the corporation is incorporated.
Corporation. An organization formed under state law for the purpose of carrying on a business enterprise in such a manner as to make the enterprise distinct from its owners.

Dealer. An individual or firm who buys and sells securities as a principal rather than as an agent. The dealer’s profit or loss is measured by the difference between the price paid and the price received for a security.

Debt financing. The use of borrowed money to finance a business.

Due diligence investigation. An examination by a company’s investment bank and accountants of the company’s management, operations, financial condition, competitive position, performance, and business objectives and plan, as well as information regarding the company’s labor force, suppliers, customers, and industry.

Equity. Stock ownership in a corporation.

Equity financing. The securing of a monetary investment from an investor in which the investor becomes a part owner of the business.

Fiscal year. The year-end established by a business for accounting, planning, and tax purposes.

Financial reports. Reports that show the financial status of a company at a given time.

Financial statement. A presentation of financial information derived from the accounting records. Financial statements include a Balance Sheet, Income Statement (or Profit and Loss Statement), and Cash Flow Statement.
Float. The number of shares of stock actively traded over a specified period of time.

Going public. The process of a private company selling its stock to the public to raise capital.

Income statement. An accounting method for determining the profit or loss of a business on a periodic basis.

Initial Public Offering (IPO). The initial sale by a company of shares of its stock to the public in the financial market.

Investment bank. Also known as an underwriter, an investment bank acts as an intermediary between corporations issuing new securities and the public. Normally an investment bank buys a new issue of securities for a negotiated price. The investment bank then forms a syndicate and resells the securities to its customers and to the public
Issuer. A corporation that issues shares of stock to be sold to the public.
Market maker. A broker/dealer who is registered to trade in a particular security on the NASDAQ.

National Association of Security Dealers, Inc. (NASD). A self-regulating industry association of broker/dealers in the over-the-counter securities business. The NASD administers the NASDAQ.

National Association of Security Dealers Automated Quotation System (NASDAQ). A global intranet which provides brokers and dealers with price quotations on securities traded over-the-counter.

New York Stock Exchange (NYSE). A trading floor marketplace where public buy and sell orders meet, resulting in competitive price discovery at the point of sale. The NYSE is linked to other markets through the Intermarket Trading System (ITS).

Offering statement. See “Prospectus.”

Over-the-Counter (OTC) Market. A residual securities market. All transactions that do not take place on a stock exchange are said to be executed in the OTC Market.

Prospectus. A written document prepared for presentation to investors as both a selling document and as a legal disclosure document. The prospectus contains a description of the business, management, management compensation, intracompany transactions, names and shareholdings of principal shareholders, audited financial statements, a discussion of operations and financial condition, use of proceeds, dilution, and the company’s dividend policy, as well as a description of the company’s capitalization and underwriting arrangements.

Public offering. The sale by a company of shares of its stock to the public in the financial market.

Registration statement. A document filed with the SEC which discloses pertinent information relating to a company’s operations, securities, management, and the purpose of the offering. Before a security may be sold on a national stock exchange, it must be registered.

Stock exchange. An organized marketplace where securities are bought and sold.

Subchapter S Corporation. A corporation that has elected under Subchapter S of the Internal Revenue Code not to pay any corporate taxes on its earnings, and instead to have its shareholders pay taxes on it.

Securities and Exchange Commission (SEC). The federal governmental agency that maintains order of the stock and securities exchanges.

Syndicate. A group of investment banks that collectively underwrites and distributes a new issue of securities to their customers and to the public.
Underwriter. See “Investment Bank.”

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