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FINRA BB Model | Direct Private Offers


This method of ‘going public’ is the FINRA BB Model:

Some will argue that technically it is not ‘going public’ because shares are not being registering for free trading under the 33 Act; and therefore you are relying on exemptions from prospectus registration to raise capital for you company.

Technically, you only become an SEC “reporting company“ by doing the Form 10 Registration under the 34 Act.

The FINRA BB is a cost effect competitor to OTC Markets because it is free. It does not connect the Broker Dealers using the same electronic trading connectivity as OTC Markets; but the Broker Dealers can trade your stock in a similar manner.

A requirement of the FINRA BB is that you are an SEC reporting company. At one time non-reporting companies were able to be quoted, but that is no longer the case. There are no minimum capitalization requirements.

One of the short falls of using this route to go public is that it might take you a while to get your stock symbol from FINRA. This is because you require 35 investors and about 1.5 M free trading shares for FINRA to give you your ticker symbol.

Stock sold under prospects exemptions is restricted from trading for about a year. Once you have been a reporting company for a year, the stock you sold under prospectus exemptions is only six months. Some sources say that you don’t need to be a reporting company for a year in order to have an abbreviated restriction period – it is always a good idea to tell your prospective investor that the stock you are selling them is ‘going to be restricted for a year’.

This leads us to the unwritten constitutionof both FINRA and DTCC. Either one will discriminate against you at any time. In the case of DTCC, they will decide to ‘not accept’ the attorney opinion letter drafted and given to your Transfer Agent to release restricted stock; and then put a chill on your company’s stock. FINRA is also prone to reject your submissions or your Broker Dealer’s position at anytime and no appeal process is available to you.

The main reasons that FINRA BB model is a superior way for a small company to go public is that the company is clean from the onset; you don’t have to worry about toxic debt in the form of Convertible Notes plaguing your company – which you would if you bought a shell.

The big thing about buying shell companies is that you are buying a ‘penny stock’ culture: Broker Dealers have to get the buyers of your stock to sign a waiver, disclosing the fact that your stock is very risky. Many institutions will not buy penny stock either. Penny stock is prone to market manipulations; there is no barrier to entry for day traders, market manipulators and speculators because the stock is so cheap. They can buy $500.00 dollars worth of your stock and ‘make a box’ whereas they sell some stock to their buddies, or to another account for a high price than hope some others start buying the stock and when a stock is trading at 0.0002 and then starts selling at 0.0008, there is room for the speculators to make some money. There are many speculators out there that make a decent living off these kinds of manipulations.

Another benefit of starting off with one of these companies is the fact that you can get out of the penny stock market from the onset by setting up you shares with a cost of $5.00 and up. Now you do have a challenge here if you are raising less than $7,500,000, because your Broker Dealer might not get FINRA to issue you a stock symbol because you haven’t sold 1.5M shares.

As a reporting company there is a number of States that allow you secondary trading exemptions as well as exemptions whereas restrictions are not placed on stock sold in their particular State.

The cost of becoming a reporting company is very reasonable: if the Company is a start up, you can likely get your financial statements PCAOB audited for about $3-5k. There are a few Attorneys around that will do a Form 10 Registration Statement for less than $10K.

There are a number of other benefits of doing a Form 10 Registration:

  1. You still have the option of completing a S1 Registration, without going through any duplicate processes. Because of EXtensive Business Language Reporting rules, you can hyperlink everything in your S1 Statement to your F10 Registration Statement.  Many small companies abort the S1 process because they don’t have the resources to manage such a complex process. By doing a F10 Registration process firstly, you are getting the 34 Act Registration process out of the way; and then you can do the 33 Act Registration when you have raised enough money to advance your project.
  2. You can do a prospectus exempt offering while your company is in the registration process. Your Offering Document is wrapped around the F10 Registration Document, and it is very influential. It is often difficult to get a Broker Dealer interested in your offer as you are establishing your company. This process shows the BD that you are a serious player and ready, willing and able to ascribe to the high reporting standards that are necessary to become and stay a reporting company. It also makes it easier for the Broker Dealer to sell your stock to their clients.
  3. As a reporting company there is a number of States that allow you secondary trading exemptions as well as exemptions whereas restrictions are not placed on stock sold in their particular State.
  4. Canadian State Regulators except SEC Reporting Companies, they may ask you to ‘wrap’ your SEC documentation with some additional information; but ultimately, you have a larger market. This may be important for you if Canadian Investor becomes interested in your Company; or you have a market in Canada. Becoming an SEC Reporting Company is the cheapest and fastest way to Go Public in Canada.
  5. A Form 10 Registration is different than a F-10 Registration. The F-10 Registration is for established trading companies.

The Direct Private Offers Registration Process is simple… …..
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