By Laura Anthony, Esq.
On May 3, 2016, the SEC issued final amendments to revise the rules related to the thresholds for registrations, termination of registration, and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934. The amendments mark the final rule making and implementation of all provisions under the JOBS Act, and implement further provisions under the FAST Act.
The amendments revise the Section 12(g) and 15(d) rules to reflect the new, higher shareholder thresholds for triggering registration requirements and for allowing the voluntary termination of registration or suspension of reporting obligations. The new rules also make similar changes related to banks, bank holding companies, and savings and loan companies.
Specifically, the SEC has amended Exchange Act Rules 12g-1 through 12g-4 and 12h-3 related to the procedures for termination of registration under Section 12(g) through the filing of a Form 15 and for suspension of reporting obligations under Section 15(d), to reflect the higher thresholds set by the JOBS Act. The SEC also made clarifying amendments to: (i) cross-reference the definition of “accredited investor” found in rule 501 of Regulation D, with the Section 12(g) registration requirements; (ii) add the date for making the registration determination (last day of fiscal year-end); and (iii) amend the definition of “held of record” to exclude persons who received shares under certain employee compensation plans.
The new rules were initially proposed on December 18, 2015. A few days before the proposed rules were issued, on December 4, 2015, the FAST Act was enacted into law, including provisions implementing the revised thresholds for savings and loan holding companies, effective immediately without further action by the SEC. Despite this overlap, the SEC has now cleaned up all the provisions, thus aligning the rules with the statutory requirements.
Following the final implementation of the relevant JOBS Act and FAST Act provisions, a company that is not a bank, bank holding company or savings and loan holding company is required to register under Section 12(g) of the Exchange Act if, as of the last day of its most recent fiscal year-end, it has more than $10 million in assets and securities that are held of record by more than 2,000 persons, or 500 persons that are not accredited. The same thresholds apply to termination of registration and suspension of reporting obligations. As discussed below, determining which shareholders are accredited as of the last day of a fiscal year-end can be difficult.
A company that is a bank, bank holding company or savings and loan holding company is required to register under Section 12(g) of the Exchange Act if it has more than $10 million in assets and securities that are held of record by more than 2,000 persons and is allowed to terminate or suspend registration if its securities are held of record by fewer than 1,200 persons.
Registration, Termination of Registration and Suspension of Reporting Obligations
The JOBS Act amended Sections 12(g) and 15(d) of the Exchange Act to adjust the thresholds for registration, termination of registration and suspension of reporting. Prior to enactment of the JOBS Act on April 5, 2012, the Exchange Act required companies with greater than $10 million in total assets and greater than 500 record holders of any class of equity security to register and file periodic reports with the SEC. This requirement was burdensome for companies aspiring to raise capital and grow but that were not yet ready to become publicly reporting.
Section 12(g) of the Exchange Act and the rules promulgated thereunder allowed a company to deregister and relieve itself of the reporting requirements of the Exchange Act if it has fewer than 300 shareholders, or fewer than 500 shareholders and less than $10 million of assets.
Note 1: Original appeared on Legal & Compliance, LLC on 10 May 2016. Click HERE
Securities attorney Laura Anthony is the founding partner of Legal & Compliance, LLC, a corporate, securities and business transactions law firm. The firm’s experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances.