Sponsor-Backed IPOs: Governance and Liquidity Issues

Summary

This practice note discusses governance structures for a sponsor-backed initial public offering (IPO) company, contractual protections for sponsors in the post-IPO company, and other issues that sponsors should consider in anticipation of exiting a post-IPO company. Although sponsors, typically private equity firms, usually maintain an investment in a company for three to seven years following an IPO, many contractual rights from their pre-IPO shareholder agreements fall away once the company becomes subject to the corporate governance rules of the Securities and Exchange Commission (SEC) and the national securities exchange on which its shares are listed.