CHAPTER 7 Exchange Act registration thresholds B
efore the enactment of the JOBS Act, Exchange Act section 12(g) required registration of a class of an issuer’s equity securities if, as of the last day of the issuer’s fiscal year, the issuer had more than
$10 million in assets and the class of equity securities was held of record by 500 or more persons.1
Once these
thresholds were crossed, an issuer would have to register the class of equity securities within 120 days of the end of the fiscal year, and then begin filing current and periodic reports with the SEC.2
The definition of “held of record”
for these purposes counts as holders of record only persons identified as owners on records of security holders maintained by the company, or on its behalf, in accordance with accepted practice. An issuer could only deregister a class of equity securities under section 12(g) when such class of equity securities is held of record by less than 300 persons, or by less than 500 persons and the total assets of the issuer has not exceeded $10 million on the last day of each of the issuer’s three most recent fiscal years. Exchange Act section 12(g) was originally enacted out of concern that issuers who were not listed on a national securities exchange could nonetheless be widely held and traded over the counter, and therefore disclosure should be available to investors in such issuers through SEC registration and reporting. Leading up to the JOBS Act changes to the Exchange
Act registration/deregistration thresholds, concerns were raised about the fact that the 500 person held-of-record threshold had not been revisited since 1964. These concerns focused on the fact that issuers sometimes had to go public sooner than they might otherwise want to by virtue of the mandatory registration provisions in section 12(g), and the possibility of SEC registration and reporting could serve to discourage private companies from raising capital and using equity awards to compensate employees. At the same time, concerns were expressed with issuers going dark and ceasing their SEC reporting by bringing the number of holders of record below the deregistration threshold. As a result of these concerns, a variety of proposals were advanced relating to possible amendments to section 12(g) registration thresholds. Some of these proposals sought to reduce the number of issuers
required to report pursuant to the Exchange Act, for example, by raising the shareholder threshold,3
by
excluding employees, or by excluding accredited investors, QIBs or other sophisticated investors from the calculation.5
The SEC also received a rulemaking petition
requesting that the SEC revise the held of record definition to look through record holders to the underlying beneficial owners of securities in order to prevent issuers from ceasing to report in certain circumstances.5
Before April 5 2012,
the SEC was conducting a comprehensive study of these issues and was actively considering the various proposals.
Raising the registration and deregistration thresholds in Titles V and VI As amended by Titles V and VI, Exchange Act section 12(g) now requires registration of a class of equity securities if, at the end of its fiscal year, an issuer has at least $10 million in assets and a class of equity securities held of record by either 2,000 persons, or 500 persons who are not accredited investors. Banks6
and bank holding companies7
are not required to register unless they have, at the end of the fiscal year, at least $10 million in assets and a class of equity securities held of record by 2,000 or more persons. Under Exchange Act section 12(g)(4) before the enactment of the JOBS Act, an issuer could deregister a class of equity securities when either the issuer has $10 million or less in assets and the class of equity securities is held by fewer than 500 holders of record, or the class of equity securities was held by fewer than 300 holders of record. The JOBS Act increased the 300 persons held-of- record threshold in Exchange Act section 12(g)(4) only with respect to banks and bank holding companies, raising that threshold from 300 to 1,200 persons. The JOBS Act did not increase the 300 persons held-of-record threshold for deregistration for issuers that are not banks or bank holding companies. Under the JOBS Act, Exchange Act section 12(g)(5) was amended to provide that the term “held of record” does not include “securities held by persons who received the securities pursuant to an employee compensation plan in transactions exempted from the registration requirements of section 5 of the Securities Act.” The SEC is directed to
JOBS Act Quick Start 61
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