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SEC Proposes Changes to Exchange Act Registration Thresholds 01/08/2015

Posted by Morse Barnes-Brown Pendleton in Corporate, Legal Developments, New Resources.
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Corporate Attorney Mark TaralloBy: Mark Tarallo

On December 17, 2014, the United States Securities and Exchange Commission (“SEC) issued proposed amendments to the existing rules adopted under Section 12 (g) of the Exchange Act to reflect the new, higher thresholds for registration, termination of registration and suspension of reporting that were adopted as part of the JOBS Act.    In addition, the proposed amendments would revise the definition of “held of record” in Exchange Act Rule 12g5-1, in accordance with the JOBS Act, to exclude certain securities held by persons who received them pursuant to employee compensation plans and establish a non-exclusive safe harbor for determining whether securities are “held of record” for purposes of registration under Exchange Act Section 12(g).

Whether or not an issuer has “gone public,” any issuer that meets certain tests with respect to total assets and number of shareholders is required to file a registration statement and file regular periodic reports (such as forms 10-K and 10-Q).  The proposed amendments will adopt the standards set forth in the JOBS Act-an issuer must register if, as of the last day of its last fiscal year, it (i) had greater than $10 million in assets and (ii) had greater than 2,000 holders of record (or 500 persons who are not accredited investors) of any class of its securities.  In addition, the proposed amendments will revise the rules to make them consistent with the standards for termination of registration and suspension of reporting set forth in the JOBS Act.

The proposed amendments will also address the concept of securities “held of record.” In an effort to meet the goals of the JOBS Act of increasing the ability to raise capital while lessening the administrative burden on issuers, when determining whether or not an issuer must register, the issuer may exclude from the calculation of securities “held of record” any securities that are held by persons who received them pursuant to an “employee compensation plan” in a transaction exempted from the registration requirements of Section 5 of the Securities Act.  This amendment may have a significant beneficial impact on technology companies and other issuers that grant restricted stock to all employees as a matter of course.

The SEC Release containing the full text of the proposed amendments can be found here .  The SEC is soliciting comments on the proposed amendments, and the comment period is open until March 2, 2015.

Any questions on this topic, please feel free to contact Mark Tarallo.


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