The Bermuda Stock Exchange can facilitate the transformation of a local private company into a public company by means of a relatively straightforward process commonly referred to as "going public" or participating in an initial public offering.

Basically, "going public" is the process by which a closely held entity with a handful of owners is converted into a company with a large number of shareholders who buy and sell its shares through a stock exchange.

A portion of the company is made available for public ownership through the sale of debt or more commonly, equity securities (shares). The BSX has launched several initiatives designed to both inform prospective investors of local investment opportunities and to encourage local companies to offer their shares to the Bermudian public.

To date, the securities of 36 local companies, including family-run businesses are listed on the Exchange. Publicly traded local companies are divided into two categories based on market capitalisation: Main Board and Small Cap.

The Small Cap listing category comprises companies with a market capitalisation of at least $500,000 and is specifically designed to permit smaller local companies to offer their shares to the public. The fees associated with listing the shares of a local company on the BSX are generally considered to be reasonable. The listing regulations are clear and comprehensive and the reporting requirements are not unduly onerous.

The exchange of shares of a public company through an organised market can result in those shares being valued at a higher price than the shares of a comparative private company because of their marketability.

In circumstances where the shares of a public company are overvalued by the market, shares may be sold to raise additional capital.

Conversely, if the shares are undervalued the company may purchase its shares in the open market at reduced prices. An initial public offering will provide the company with additional funds to meet working capital needs, acquire other businesses, expand research and development efforts, invest in facilities and equipment, or retire existing debt.

Additional capital may be deployed so as to enhance the competitive position of the company by enabling the company to enjoy greater market penetration. The opportunity to take a company public may become important to the owners of a family-owned company whose younger members do not aspire to manage the business.

Their personal net worth may be enhanced by the public offering. Family members may diversify their portfolio of investments or convert their shares into cash for retirement.

Wealth may be transferred to future generations in a cost-effective manner since there is no stamp duty payable on transactions involving the sale of securities listed on the BSX. The status of a listed company adds immeasurably to the credibility of that company when dealing with lenders, customers and staff.

Banks and other financial institutions are less likely to require any personal guarantees from the principals of a public company in order to secure loans obtained to finance business expansion. The company may be able to attract and retain more highly qualified personnel if it can offer share options, bonuses, or other incentives with a known market value.

Share options and other incentive compensation plans enable personnel to participate in the company's success, without increasing cash compensation.

The chance to acquire shares in the company they work for also encourages employees to take a more long-term view of the company. There is no guarantee that a public company will not become the target of a takeover bid. However, several strategies may be employed in an effort to discourage a hostile acquisition.

A limit may be placed on the number of shares available to the public.

Restrictions may also be placed on the ability of major shareholders to sell their shares.

The voting rights attached to different classes of shares may be varied so that the principals of the company retain voting control.

The terms during which directors serve in office may be staggered to protect against major shifts in voting control. While the benefits of raising capital through a public offering are attractive, the obligations must be carefully considered.

For instance, shareholders must be kept informed of the company's business operations, financial condition, and management.

There may be some loss of flexibility in managing a company's affairs, particularly when shareholder approval is required for certain action. It is important to evaluate a company's appeal to investors and the state of the market before making the decision to go public.

Preparation of a sound business plan and reliance on the counsel of experienced professional advisers will reduce the time and costs related to taking a company public.

Attorney Graham Simmons is a member of the Company Department of Appleby Spurling & Kempe. Copies of Mr. Simmons' columns can be obtained on the Appleby Spurling & Kempe website at www.ask.bm. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.