When it comes to public versus private, I have no preference. Your decision should be based on what is best for your product and the integrity of the company’s management. Maintain the frame of mind that you are evaluating the company, not that you’re in the inferior position and the company is considering you and your product.

Once I tore up a proposed license agreement and returned a check in the sum of $10,000 because I had no faith in the integrity of the company’s CEO. My instincts are pretty good in this regard. And if someone slips through my defenses, I know my wife, Sheryl, will sound an alarm. Her instincts are awesome.

The best place to obtain deep, detailed information on a publicly traded company is the Securities and Exchange Commission (SEC). The independent, bipartisan, quasi-judicial federal agency was created on July 2, 1934, by an act of Congress. It requires a public disclosure of financial and other data about companies whose securities are offered for public sale.

The SEC requires all public companies (except foreign companies and companies with less than $10 million in assets and 500 shareholders) to file registration statements, periodic reports, and other forms electronically. Anyone can access and download this information for free. Go to www.sec.gov to find links to and instructions for searching the EDGAR database. A stock broker can also pull it for you.

You can learn a lot about publicly held companies by perusing a copy of their annual reports. Corporate annual reports are on file with the SEC or can be obtained directly from the company. There is no charge for annual reports that are ordered from a company; if you get annual reports from the SEC, it requires copying, which costs money. Contact the executive in charge of Investor Relations or the senior VP and CFO at the particular company you are researching.

Form 10-K, the most useful of all reports filed with the SEC, reveals the following important tidbits in addition to the registrant’s state of business:

And that’s just the tip of the iceberg!

Part 1 of the 10-K reveals, among other things …

How long the company has been in business. What you would expect from an established company may vary from what you would tolerate at a start-up firm.

What the company produces, percentages of sales any one item constitutes, seasonal/nonseasonal, and so on. It is critical to have a complete picture of the company’s products, its strengths and markets, and any seasonality or other restrictions.

How the company markets, such as via independent representatives or regional staff offices. It is important to know how a company gets something on the market and where the sales staff loyalty is. For example, company employees typically have more loyalty than independent sales reps who handle more than one company’s line.

Whether it pays royalties and how much per year. You can often see how much work is done with outside developers and whether it licenses anything. An example of such wording is this from a 10-K: “We review several thousand ideas from professionals outside the Company each year.” Another reads, “The Company is actively planning to expand its business base as a licenser of its products.” Such statements show that doors are open!

How much the company spends to advertise and promote product. If yours will require heavy promotion and the company does not promote, you may be at the wrong place. It is counterproductive to take promotional products to companies that do not promote.

Details on design and development. You should know before approaching a company whether an internal design and development group exists and what its strength is. I found one 10-K in which a company stated, “Management believes that expansion of its R&D department will reduce expenses associated with the use of independent designers and engineers and enable the Company to exert greater control over the design and quality of its products.” It could not be more obvious that outside inventors were not wanted.

Significant background on production capabilities. It is valuable to know in advance the company’s in-house production capabilities and what its outsourcing experiences are in your field of invention. It is no use taking a technology to a company that does not have experience making it.

Whether the company is involved in any lawsuits. You may not want to go with a manufacturer that is being sued. Maybe it has just risen from a bankruptcy. All this kind of information is an excellent indicator of corporate health.

The ownership of certain beneficial owners and management. This gives you the pecking order and power structure. You will see who owns how much stock (including family members), and what percentage this represents. Age and years with the company are also shown.

Competition. This will give you a frank assessment of the company’s competition and its ability to compete. One 10-K I read admitted, “The Company competes with many larger, better-capitalized companies in design and development ….” It is unlawful to paint a rosy picture when it doesn’t exist. The 10-K is one of the few places you can get an accurate picture of the company’s competitiveness. Consider whether you would want to license a product to a company that states, for example, “Most of the Company competitors have financial resources, manufacturing capability, volume, and marketing expertise which the Company does not have.” This signals that you should check out the competition.

I think the 10-K is the most useful of all SEC filings. This form is filed within 90 days after the end of the company’s fiscal year and remains on file at the SEC for 10 years.

No regulations require private companies to fill out the kinds of revealing reports public companies do. You will not have details about private companies at your fingertips like you do with public ones. But by digging, you can come up with some useful stuff. Here are some questions I try to get answers to before talking to a private company:

Is the company a corporation, partnership, or sole proprietorship? This can have legal ramifications from the standpoint of liabilities the licensee assumes. A lawyer can advise you on the pluses and minuses of each situation.

When was it organized or incorporated? If a corporation, in which state is it registered? When a company was organized will give you some idea of its experience. The more years in business, the more tracks in the sand. The state in which it is registered will tell you where you may have to go to sue it.

Who are the owners, partners, and officers? Always know with whom you are going into business. In the end, companies are people—not just faceless institutions.

What are the bank and credit references? How a company pays its bills is important, for obvious reasons, and its capital base is worth assessing.

Is the manufacturer the source for raw material? Does it fabricate? This helps estimate a company’s capabilities for bringing your invention to the marketplace.

How many plants does the company own (lease) and total square footage? Warehouses? This kind of information will help complete the corporate picture.

What products are currently manufactured or distributed? Do not waste time pitching companies that do not manufacture your type of invention. Maybe a company you thought to be a manufacturer is really only a distributor.

How does the company distribute? Find out about the direct sales force. Make inquiries concerning outside sales reps and jobbers (wholesalers). Does the company use mail order, house-to-house, mass marketing, or another form of distribution? This will quickly reveal how a company delivers product and whether its system is appropriate for your concept. With a mass-market item, it would be foolish to approach a door-to-door marketer, regardless of its success.

Answers may come from a combination of sources, ranging from state incorporation records to interviews with competition, suppliers, stores (as appropriate), Internet sources, and the owners themselves. Finding the answers requires digging, but this background information may be critical to your long-term success.