By |Published On: Feb 19, 2024|Categories: Financial Planning|

Congratulations on the recent and fantastic news that your company is planning to go public through an Initial Public Offering (IPO) process.

So what does that mean to you? The potential for a large sum of money and a lot of decisions to go along with it, as detailed in this series of articles.

IPO Definition

The traditional definition of an IPO is an Initial Public Offering. It’s the first time that the shares of a private company are available for purchase by the public. However, I like to refer to it as an “Instant Profit Opportunity” because private investors in the company and you (the employees) can realize gains on the share ownership.

A few years ago, my dear friend Sophia, who now works at a healthcare AI startup, went through an IPO and she learned quite a bit from the experience. In our series of articles, you will be able to understand more about the IPO process, what you can expect, and what it means to you.

This is a once-in-a lifetime opportunity for you and these articles will outline a process in four sections so that you can make the most of your windfall:

  1. IPO Process
  2. Impact of your RSUs
  3. Documents required to understand your situation
  4. How we can work together today, during the public offering, and in the future

The Mechanics of the Offering

First of all, the timeframe for a company to transition from private status to public company usually takes 6 months.

Here are the details of how an IPO works:

  1. An IPO is the traditional way of going public
  2. The offering is managed by one or several investment banks
  3. The investment banks will set the offering price
  4. Prior to the IPO, you will have to select the amount of shares you will sell for tax purposes
  5. Your effective tax rate this year might be different from what’s being taken from your paycheck

After your company is public, you will be required to hold onto the shares (no selling – also known as the lockup period) for up to 7 months or until March 15th of the following year.

After the lockup, you can sell your shares but remember that you will only be able to do so during certain times of the year (also known as trading windows).

Your share ownership is the topic we will discuss next week. Until then.