SpaceX IPO Date: What Investors Need to Know Before June 12

In less than two weeks, on Friday, June 12, Elon Musk's SpaceX will begin trading on the Nasdaq, under the ticker SPCX (barring unforeseen circumstances, of course).

Demand is expected to be enormous. The initial public offering (IPO) is expected to raise $75 billion making it by far the largest IPO in history. If all goes well, the stock might even join the Nasdaq-100 in July.

But should investors take the plunge? Here's what people need to know before June 12 in order to decide whether to pick up SpaceX shares on its IPO day.

Image source: Getty Images.

All IPO investing is risky

Investing in any IPO is inherently risky because pre-IPO companies aren't required to report the ful scope of their financials, and only need to provide limited information in their prospectus documents. Now that SpaceX's prospectus has been filed, we know the shares will be priced at $135/share, with 55.6 million shares on offer, but there are still plenty of unknowns about the company's business plans and operations.

Once SpaceX files its first quarterly 10-Q financial report as a publicly traded company, investors will get a much clearer picture of the business and how it operates, thanks to the Securities and Exchange Commission's strict reporting requirements. But it won't be until SpaceX files its fifth 10-Q that investors can really compare how the business has performed year over year, by looking at the year-ago quarter's SEC numbers and comparing them to the current quarterly results.

Beyond the usual risks of IPO investing, there's one particular unique risk to investing in SpaceX.

Unprecedented control

At most companies, if the CEO makes a catastrophic misstep -- or if the company badly underperforms on their watch -- they can be removed by the board or sometimes even through direct shareholder action. Such firings are uncommon, but for shareholders, having that option is important to ensure management accountability.

Elon Musk, however, will be essentially immune from such a fate at SpaceX. The company has been structured to prevent any situation that might result in Musk's involuntary departure. Here's how.

SpaceX shares come in two main types: Class A and Class B (although the company has the option to issue nonvoting Class C shares in the future). The Class A shares are the ones being offered for sale to the public in the IPO, and are subject to the usual "one vote per share" rule for voting on company matters. But the Class B shares, which ordinary investors can't buy, confer 10 votes per share, and Elon Musk owns 93.6% of those Class B shares. That gives Musk 85.1% of the combined voting power of the company.

Generally speaking, it's good for a CEO to be a major shareholder of their company, because it means their goals are aligned with those of other shareholders. But when a CEO controls a supermajority of the entire company's voting power, their vote is the only shareholder vote that matters. All other shareholders are basically just along for the ride.

If you're a big Musk fan, that may be a selling point for you, but it's not the only way Musk will be insulated from shareholder pushback.

Getting on board

A majority of SpaceX's board seats will be elected by Class B shareholders only. Since Musk controls nearly all the Class B shares, that means he will basically appoint a majority of his own board. And because removing a CEO requires a majority vote among board members, the only way Musk could realistically be removed by the board would be if one or more of his hand-picked board members voted to remove him.

So, even if every shareholder not named Elon Musk was dissatisfied with Musk's leadership, their only option would be to sell their shares.

At most companies, disgruntled shareholders who believe they've been misled or wronged by a company, its board, or its management can try suing in court. That's not the case at SpaceX. The prospectus reveals that SpaceX's bylaws will require all shareholder actions against the company, its directors, or its officers to be adjudicated through arbitration instead of in court, and also require shareholders to waive their right to a jury trial.

Image source: Getty Images.

No way around it

If you buy SpaceX stock, you and your investment -- for better or for worse -- are completely at the mercy of Elon Musk. Whose compensation package, incidentally, includes 1 billion restricted Class B shares to be vested partially upon "the Company's establishment of a permanent human colony on Mars with at least one million inhabitants" during his tenure.

Given the many unknowns and the lack of accountability, investors considering buying in on June 12 should be wary of the heightened risks of a SpaceX IPO investment.

John Bromels has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.