Direct Listing Requirements

For private companies that are well funded but have an interest in going public, choosing to accomplish this via a Direct Listing offers distinct advantages. Entrepreneurs can provide their early funders and employees holding shares in the company with easy access to liquidity and gain attention for their brand without having to woo institutional investors and without diluting their stock. These are significant advantages over the alternative — going public via an IPO — and also has the added benefit of carrying far fewer requirements.

The basics:

• U.S.-based companies are required to have annual financials that have been audited by a PCAOB auditor, though Tier 2 Regulation A companies are exempted from this rule, at least for their initial audit.
• Company cannot be in bankruptcy
• Company must meet a minimum bid price test of $0.01
• Company must have a minimum of 50 beneficial shareholders, each of whom own a minimum of 100 shares
• Company must have a freely traded Public Float of at least ten percent of the total issued and outstanding of their security, though an exemption may be available for companies with a freely traded Public Float of at least five percent that have $2 million in market value of public float. The exemption is also available for companies that have a separate class of securities traded on a national exchange.
• U.S. companies must be working with a transfer agent who participates in the Transfer Agent Verified Share Program
• Companies outside of the United States must have a listing on a Qualified Foreign Exchange (or SEC Reporting) and must submit a Letter of Introduction from an approved sponsor

In addition, companies must meet at least one of the following Reporting Standards:

• SEC Reporting Standard
• Regulation A Reporting Standard (Tier 2)
• U.S. Bank Reporting Standard
• International Reporting Standard
• Alternative Reporting Standard
• Timely disclosure of material news

For companies qualifying under the Alternative Reporting Standard, Corporate Governance Requirements include having a board of directors that includes at least two Independent Directors, have an Audit Committee, and having a majority of members who are Independent Directors.



To meet the Verification Requirements, companies must maintain a Verified Company Profile and post initial and annual verification and management certification.

Comparing Direct Listing requirements to those for completing an IPO, it’s easy to see why entrepreneurs who are well funding would opt for a direct listing. Though the two have similar legal requirements regarding financial disclosure, the SEC review process takes just two to three months. Both require the adoption of SEC and listing requirements with reference to governance policies and programs, but a Direct Listing requires minimal marketing efforts, where the IPO requires a commitment of time and face-to-face interaction with potential investors. Both Direct Listings and IPOs have requirements designed to protect investors, and therefore companies require the help of financial advisors to inform trading and pricing and to ensure accuracy of their disclosures.