An IPO looms: is it time to leave? There are no hard and fast rules about whether to resign from a board or stay on in the face of an IPO. The decision is a uniquely personal one.

• Author: Ferrillo, Paul A.
• Position: BOARD PRACTICES

Being involved with a successful private company can be a lot of fun for a director. Building "something" is inherently good. Building something "successful" that people like, use and trust is even better. Further, the workload of a director of a private company can at times be pretty tolerable, and many times even intellectually stimulating.

But then there is the day when someone from management, or perhaps the founder of the company, or an investor, utters the phrase, "I think it's time to go public." And the director says, "Well, let's chat about that for a moment."

Invariably, an IPO results in the IPO company reevaluating the make-up of its board and committees. The IPO company may need additional independent directors or may decide that it needs directors with particular skill sets or experiences, such as an accounting background. Even if the IPO company decides to leave the board unchanged, the director knows that going public is a game changer for the director.

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Time and liability

First, there will certainly be a greater time commitment for the board and the management to start, manage and complete the IPO process, and to direct the company thereafter. More resources will be needed for the accounting, finance and compliance functions of the company to produce quarterly and yearly audited financial statements that comport with public company accounting require ments and to comply with the myriad provisions of the Sarbanes-Oxley Act. And finally, going public brings a significant risk of potential personal liability, as those who sign an IPO company's Registration Statement can face liability under Section 11 of the 1933 Act if something goes wrong with the IPO and stockholders sue, or liability under Section 10(b) of the 1933 Act, if the company later misses a quarter, its stock drops precipitously, and stockholders sue.

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All these potential issues can cause a director to think twice about whether he or she wants to see the IPO through to fruition, or resign from the board "with skill and grace" to avoid some of the potential problems mentioned above.

There are no hard and fast rules about whether to resign from a board or stay on in the face of an IPO. The decision is a uniquely personal one. But here are some things for a director to consider when faced with a decision to stay on a board after a company decides to pursue and IPO. We break these considerations up into "non-operationsl"...