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In order for your stock to trade, no matter how it went public, the stock must be listed on Pink Sheets, the OTCBB markets, or a stock exchange. For small businesses, this means getting stock trading on Pink Sheets or OTCBB.

To have a trading market, you need one or more market makers. This market maker must be a broker-dealer who is a member of FINRA and is registered with the SEC.

To begin trading, a market maker must file a Form 211 with the Financial Industry Regulatory Authority, FINRA, and create a market in its stock.

A FINRA rule says that market makers should not charge any fee for filing a Form 211. We surveyed all market makers listed on Pink Sheets last year and all but one wanted a $10,000 “due diligence” fee. or something similar to file Form 211. Given the expense and time involved, and the likelihood that a fraudulent company’s filing reflects poorly on them, we can hardly blame them for wanting to do their due diligence. Other than that, we believe that a market maker should be willing to file a Form 211 if he believes substantial business will be developed from trading the stock. Market makers make money primarily on volume.

FINRA processes Form 211 and requires that there be enough unaffiliated shareholders with freely tradeable shares to make trading of the shares possible. They don’t want this stock to be concentrated in a few hands.

You will need to document in detail how these shares were offered and sold and demonstrate that this complied with all SEC and state securities laws and regulations. These shares must be purchased in a bona fide investment transaction and not simply given away to shareholders.

You will need to show that your company is not a shell company as defined in Rule 144. You will need to show that you are in a bona fide business with assets and at least be a development stage company.

You will need to produce a list of shareholders from your transfer agent that clearly shows the shares are freely traded and an opinion from your securities attorney that these shares are in fact freely traded shares and are not restricted. FINRA can stop Form 211 if you have any connection to unsavory characters. or if there is something else they don’t approve of.

If FINRA does not approve your Form 211, you have the right to appeal to the SEC. We would expect that any such appeal is likely to be unsuccessful.

Obtaining the correct documentation, obtaining a proper list of shareholders, and selecting a market maker are all important steps in the process.

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