US rule likely to trigger Facebook IPO next year

San Francisco: With so many investors becoming fans of the company, Facebook will be legally required to begin sharing more information about its finances and strategy by April 2012, according to documents distributed to prospective shareholders.

Some of the numbers that began trickling out Thursday were eye-popping — most notably a net profit margin of nearly 30 per cent, much higher than most people had previously speculated.

The owner of the world's largest internet social network, privately held since it started in a Harvard University dorm room seven years ago, will be forced to open its books because it expects to have more than 500 shareholders at some point this year, according to a person who has reviewed the documents handed out on Thursday.

The person asked not to be identified because the documents were only being given to an elite group selected to buy a stake in Facebook through a fund packaged by the company's newest investor, Goldman Sachs Group.

Surpassing 500 shareholders will catapult Facebook over a hurdle likely to lead to the company's long-awaited initial public offering of stock next year.

After a company with at least $10 million (Dh36.78 million) in assets has more than 500 shareholders, the Securities and Exchange Commission requires it to disclose its financial results and other details on a quarterly basis in an effort to ensure investors are adequately informed.

The reporting requirement kicks in 120 days after the fiscal year in which a company exceeds the shareholder threshold for the first time.

Facebook's fiscal year ends December 31, meaning it would have until late April 2012 to comply.

The company, now based in Palo Alto, could still retain a private ownership structure, but an IPO is the more probable scenario given Facebook will have to make many of the same disclosures of a publicly traded company anyway.

But Facebook founder Mark Zuckerberg, 26, has been in no hurry to take the company public, partly because he hoped to preserve a free-wheeling culture.

Some analysts also think Zuckerberg, named Time magazine's person of the year for 2010, wanted to avoid the public limelight so he would have more time to mature as a leader.

To help keep the company private, Facebook sought and received an SEC exemption in 2008 that assured employees who received a class of stock wouldn't be counted toward the 500-shareholder barrier.

The stock awarded those employees won't be issued until an IPO or sale of the company occurs, another factor that will pressure Zuckerberg to drop his resistance to an IPO.

Investor's workers get Facebook lesson

Now that Goldman Sachs Group has invested $450 million in the Facebook social-networking website company, it wants to make sure employees know how the website works.

They were given a lesson from David Ebersman, Facebook's chief financial officer, who walked members of the bank's private wealth-management group through the basics during a presentation at Goldman Sachs's San Francisco office, according to a person who listened in and asked not to be identified.

Goldman Sachs, which discourages its employees from using social-networking sites at work, invested $450 million in Facebook which is in Palo Alto, California. The private-wealth unit was planning to create a vehicle for its clients to invest as much as $1.5 billion.

The investment in a company whose product it disfavoured was "amusing," said Steven Neil Kaplan, a professor of entrepreneurship and finance at the University of Chicago's Booth School of Business.