In: Categories » Legal and finance » Investing » Be Your Own Broker with Direct Public Offerings (DPOs)
|
Historically, small companies have had a difficult time finding capital to expand their businesses. Traditional lenders are frequently unwilling to take risks with untried companies. Venture capitalists negotiate tough deals that often force company founders out of key management roles. And traditional IPOs require a minimum of $15 million in annual revenue. If you take an initial public offering (IPO) and cut out the underwriter, what you have left is a direct public offering (DPO). Direct public offerings (DPOs) are defined as the direct sale of shares in a company to individual investors. DPOs have been around for more than 20 years. For example, Ben & Jerry’s used a DPO to raise capital for the ice cream company. However, the offering was limited to investors from its home state of Vermont. In October 1995, the SEC fueled DPOs with a ruling that makes electronic delivery of a prospectus acceptable. Consequently, companies can raise needed capital by selling their shares directly to the public via the Internet. These DPOs have the following advantages for small companies: Cost and time savings: The company saves thousands of dollars in underwriting expenses. Regulation of Internet IPOs: Issuers can file faster, turnaround times are quicker, filing is less expensive, the sales process carries fewer restric tions, and issuers can announce planned offerings. Management remains focused: Management isn’t drawn away from the company’s day-to-day business needs and customers. Investors can get in really early: Investors have access to venture capital types of investments. No broker commissions: Investors don’t have to pay high broker commissions. Recognizing the limitations of DPOs Many companies are offering DPOs instead of initial public offerings (IPOs). For many online investors, a DPO is the best way to get in on the ground floor and share in a company’s success. Investors can purchase shares directly from the companies that they want to be part owners of. However, DPOs have some limitations: Blue sky laws: Issuing companies must be registered with the SEC and in the states in which they offer securities, but new legislation allows companies to use the Internet to present direct public offerings. This new legislation is inconsistent with regulations passed in 1911. The 1911 rule requires issuers to register in the states in which they offer stocks, but the Internet has no boundaries and thus offers worldwide distribu tion of stock offerings. Does this mean that issuers have to register in each state that uses the Internet? Some issuers register in all 50 states before offering shares. However, one state, Pennsylvania, only requires companies to clearly indicate where they’re registered and who may purchase securities. Fraud and abuse: Stock issues are highly regulated, but the Internet is an unregulated environment. The enforcement of registration issues on the Internet is keeping the SEC more than busy. The result may be fraud ulent solicitations on the Internet. Buying DPOs DPO issues often open in a blaze of glory due to strong public interest. Then the share prices settle down to a consistent trading range. During the stock’s initial period of volatility, the stock price may double or triple. Cashing in at this point can be very profitable and may compensate you for earlier invest ment mistakes. DPOs are speculative and definitely for aggressive investors. In other words, if you can’t afford to lose all your investment, you shouldn’t be in this market. That said, even the most aggressive investors should invest only between 5 and 10 percent of their total portfolio in this type of financial asset. To purchase shares, obtain a subscription agreement for the DPO. The sub scription agreements are usually included in the last page of the prospectus. If you can’t find the form, request one by e-mail or through the U.S. mail. Send the completed agreement and a check for the appropriate amount to the company. The company sends a confirmation letter within five days and the stock certificate within 30 days. (I suggest making a duplicate copy of your check and subscription agreement for your records and sending the originals by registered mail.)
|
legal disclaimer
1) Our website is not responsible for the information contained by this article as well for any and all copyright infringements by authors and writers. E-articles is a free information resource. If you suspect this article for any copyright infringements, please read the Terms of service and contact us to investigate the problem.
2) The E-articles directory team is not responsible for inaccuracies, falsehoods, or any other types of misinformation this tutorial may contain and will not be liable for any loss or damage suffered by a user through the user's reliance on the information gained here. Please read the Terms of service
Useful tools and features
If you like this article (tutorial), please link to it from your web page using the information above. Linking to this page, this is the only way to help us improve our service, the same time providing your visitors with a way to improve their online experience.
related articles
In addition to bonds, banks and savings and loan associations have developed new ways of keeping customer assets in their financial institutions. They often offer a variety of investment plans that provide higher returns than traditional fixed-rate savings accounts. For example, many savings and loan associations allow their customers to invest in commercial paper (uninsured promissory notes to large business entities) instead of certificates of deposit (an insured type of time deposit)....
2. Using Free and Fee Based Online Investor Databases
Online investors have their choice of searching free or fee-based online databases. One advantage of both types of databases is that they’re constantly open. That is, you can access them 24 hours a day, 7 days a week. It’s a no-brainer that savvy online investors should start with the free databases. If the information you desire isn’t available in the free databases, try fee-based databases. If you carefully select a fee-based database for your well-constructed query, you can often get the informat...
3. Using the Internet to Make Financial Planning Easier
Many people find it difficult to shake off the notion that if they’re not wealthy, they don’t need to do any financial planning. Stock market volatility, inflation, changing interest rates, unemployment, illness, and hard times are part of life. To do no financial planning or to let others (your spouse, employer, broker, or financial advisor) do all your planning is to flirt with disaster. Remember that no one cares more about your financial well-being than you do. The Internet makes financial planning eas...
4. Maximizing Your Investments with Tax Deferred Accounts
An individual retirement account (IRA) is one of the best ways you can accumulate something to invest because making contributions and earnings is often tax-free. An IRA must be established with a financial institution that has received Internal Revenue Service (IRS) approval to offer IRAs. These financial institutions include banks, brokerages, federally insured credit unions, and savings and loan associations. IRA accounts can be established at any time. Contributions must be made by the IRA owner’s tax-filin...
Every online investor has his or her own research system for investigating investment candidates. What makes any system work is that it’s repeatable, and it ensures that you don’t make investment decisions based on emotional factors. The following guidelines can assist you in turning your hunches into investment strategies. You begin by gathering all the facts: 1. Find the candidates that you want to research. Match your hunches about stocks that are positioned to be top performers to your investor ...
6. Increasing Profits with Simple Order Specification Techniques
Traditional brokers recommend the order specifications for your stock transactions and confirm that your transactions were completed. (An order is a request to buy or sell a specified amount of a certain security or commodity at a specified price or at the market price.) Specifying security execution orders is one of the expert services that brokers use to justify their fees. Order specifications define how your request is completed. One type of order specification is called a day order. Day o...
7. General Criteria when Analyzing a Financial Statement
Companies often use their annual reports to attract new investors; you can guess that these reports contain some marketing fluff and exaggerations. Most of this embellishment is self-evident. Analyzing a company with a calculator, paper, and pencil will take you about an hour, and the results of this examination can help you make sound investment decisions. Buying stock in a company without reading the annual report is like buying a used car without seeing it. Here’s a checklist ...
8. Investments ~ How to build my own online information system
Investments provide opportunities to make money in both a bull market (that is, an up market) and a bear (down) market. No one ever knows for certain whether the market will go up or down, but investors can develop an information system to watch indicators for potential price changes and investment opportunities. This article introduces the elements you can use for building an online investment information system that meets your specific needs. in bond prices and interest rates often reflect tre...