Quick Take: Going Public On The NASDAQ Capital Market

October 4, 2024

The FKBR Quick-Take series explores trending legal topics to provide quick answers to common questions.  In this edition, our Corporate and Securities team discusses the initial listing of a company’s securities on the NASDAQ Capital Market. 

The NASDAQ Stock Market has three tiers: 

1. The NASDAQ Global Select Market;

2. The NASDAQ Global Market; and 

3. The NASDAQ Capital Market.

Quick Takes

1. What are the key listing requirements for a company to qualify for the NASDAQ Capital Market?

To qualify for listing, a company must meet certain requirements related to financial standards, liquidity, and corporate governance. For the financial and liquidity requirements, a company must meet all of the criteria in at least one of the following listing standards:

1. Equity Standard; 

2. Market Value of Listed Securities Standard; or

3. Net Income Standard. 

These three standards, however, have overlapping requirements such as:

1. The requirement for at least one million publicly held shares; 

2. A minimum of 300 round lot shareholders; 

3. The requirement for at least three market makers; and 

4. A minimum bid price of $4 per share.

Regarding corporate governance, the requirements include:

1. Having a board of directors with a majority of independent directors;

2. Committees of the board of directors, including an audit committee and compensation committee; and 

3. Other corporate governance requirements, such as establishing a Code of Conduct and Ethics. 

There are however exemptions and phase-ins for the corporate governance requirements which are applicable to certain entities. 

2. How long does it take to process a listing application?

The timeline for processing an application can vary depending on the specifics of the application. However, the NASDAQ staff typically aims to complete the process within four to six weeks, provided there are limited to no comments that arise during the review. If the application is straightforward and all necessary information is provided, this timeline is generally achievable.

3. What is the cost of a listing application?

This depends on the company’s total shares outstanding at the time of listing. Companies with total shares outstanding of up to 15,000,000 are required to pay an entry fee of $50,000, while companies with total shares outstanding of above 15,000,000 are required to pay an entry fee of $75,000. A non-refundable application fee of $5,000 is included in the entry fee and deducted accordingly.

4. Are there ongoing fees that companies should be aware of?

Yes, listed companies are required to pay an all-inclusive annual fee, which is based on their total shares outstanding. The annual fee ranges from $49,500 to $85,000.

5. Can you provide some lessons learned from companies that have successfully gone public on the NASDAQ Capital Market?

Yes, here are some lessons we have learned from our experience:

1. Preparation is Key. Before applying to NASDAQ (note that the application fee is not refundable), prepare a spreadsheet using your current financial statements calculating the qualification requirements, including projecting those calculations out to the estimated time of listing (i.e., the IPO effective date), to ensure that you currently meet and will continue to meet those requirements.  If you don’t meet the requirements, you will know what areas are deficient and can address them before applying.

2. Engage the Right Advisors. Working with experienced legal, financial, and accounting advisors cannot be overemphasized. The IPO and listing process are complex.  NASDAQ doesn’t publish all of its formulas and practices.  Consequently, it is imperative to have professionals who have done this before to minimize NASDAQ comments and your expenses. 

3. Corporate Governance. Establishing a solid governance framework early on is beneficial. This includes forming a capable board of directors and director nominees; establishing the required committees, preparing the committee charters, and arranging for committee member nominees; arranging for insurance; and having already held your annual shareholder and director meetings to adopt the required corporate governance requirements and approve the listing application. 

This is an overview of an initial listing on the NASDAQ Capital Market; it is not intended to be comprehensive; each transaction is unique and will require its own review and analysis. This is intended for general information purposes and should not be construed as legal advice.  If you have questions or would like more insights on the topic discussed in this edition, please contact any of the following members of our Corporate & Securities team:

• Lynne Bolduc, Partner (lbolduc@fkbrlegal.com) 

• Josephine Rachelle Aranda, Senior Associate (jaranda@fkbrlegal.com)

• Ikechukwu Ubaka, Associate (iubaka@fkbrlegal.com)