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Expanded Thresholds for Registration under the Exchange Act 05/08/2012

Posted by Morse Barnes-Brown Pendleton in Legal Developments.
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Corporate Attorney Joseph MarrowBy: Joe Marrow

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act) which, among other things, increases the existing metrics pursuant to which a private company is required to register a class of equity securities under the Exchange Act of 1934. The provisions of the JOBS Act described below take effect immediately.

Previously, the ’34 Act required a company to register a particular class of equity securities with the SEC and commence periodic reporting within 120 days following the last day of any fiscal year in which the company had total assets in excess of $10 million and a class of equity securities held of record by 500 or more shareholders. To provide some flexibility to private companies that have begun to bump up against the requirement for ’34 Act registration, the JOBS Act amends Section 12(g) of the ’34 Act by requiring that a company must register a particular class of equity securities when the company has more than $10 million in assets and has a class of equity securities either held of record by 2,000 persons or more or 500 or more persons that are not accredited investors. Additionally, in calculating the number of shareholders of record listed above, companies may exclude equity securities held of record by persons who received the securities pursuant to exempt transactions under employee compensation plans.

The new provisions should alleviate problems facing developing companies that have been required to finance themselves through multiple private offerings while granting stock options to numerous employees pursuant to compensation plans by delaying the requirement to commence periodic reporting under the ’34 Act.

For more information on the increases to the thresholds for registration under the 1934 Act pursuant to the JOBS Act, please contact Joe Marrow.


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