Although Sarbanes-Oxley does
not directly apply to private companies, companies that may either be acquired
by a public company or that may eventually
go public on NASDAQ or the New York Stock Exchange should be aware of
the requirements of Sarbanes-Oxley. Failing to do so may result in delays
in the company’s ability to commence a public offering or may cause
a potential acquiror to either not make an offer for the company, or
may result in the acquisition not being completed quickly at all.
The extent to which a company implements the corporate governance procedures mandated by
Sarbanes-Oxley will vary from company to company. Below is a general timeline of some of the
actions a company may want to consider as
it prepares itself for the requirements of Sarbanes-Oxley.
| Early (Series A)After first financing |
- Establish fundamental internal controls including revenue
recognition policies and controls on cash and equity
- Develop and communicate a code of conduct for all employees
- Establish a reporting (“whistleblower”)
process
Compile handbook for company employees
- Establish the company’s hiring policies
and termination procedures
|
| Expansion (Series B/C)18-24 months prior to IPO or Acquisition |
- Implement a document retention policy
- Further develop the company’s internal controls – typically
occurs as part of first audit. Includes additional documentation
and checklists to provide appropriate control environment
- Develop policy on loans to the company’s officers and directors
(not be permitted under Sarbanes)
- Establish appropriate board committees:
- Audit Committee – ideally recruit a financial expert
- Compensation Committee
|
| Late (Series C/D)9-12 months prior to IPO or Acquisition |
- Review composition of Board of Directors and committees
of the Board- ideally
- Board - majority of independent directors
- Audit – all independent
- Compensation – all independent
- Nominating/Corporate Governance – all independent
- Prepare committee charters and consider corporate governance
guidelines
- Develop complete internal controls/ documentation and testing
to meet COSO standards
- Immediately prior to IPO or Acquisition:
- Implement management certification process regarding
SEC filings and reports to Audit Committee
- Develop disclosure controls – establish
good internal communication. Requires a culture
that recognizes
importance of accurate and timely
disclosure
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