Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Wednesday, July 24, 2013

The JOBS Act’s Amendments to Form D

On July 10, 2013, the SEC adopted final rules as required by Title II of the JOBS Act which directed the SEC to eliminate the ban on general solicitation and  advertising for certain offerings conducted under Rule 506 of Regulation D, of

http://www.securitieslawyer101.com/formd-2/

Determining Accredited Investor Status Under Rule 506(c)

Going Public Options for Foreign Companies


Foreign companies seeking access to the U.S. public markets have several options in going public transactions.    Often, foreign companies seeking to raise capital from investors obtain public company status in the U.S. to attract investors.
Foreign companies that go public in the U.S. may complete a public offering by registering securities with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).
Under SEC rules, foreign companies that qualify as “foreign private issuers”  have the option but not the obligation to use rules available to foreign companies going public in the U.S.

Foreign Private Issuer Qualification

In order for a foreign company to qualify as a foreign private issuer under SEC rules, it must satisfy the definition contained in Securities Exchange Act Rule 3b-4(c) of the Exchange Act.
Rule 3b-4(c) provides the following do not qualify as foreign private issuers:
 an issuer with more than 50% of its outstanding voting securities held by U.S. residents;
 an issuer with a majority of its executive officers or directors that are U.S. citizens or residents;
 an issuer with more than 50% of the issuer’s assets are located in the U.S.; or
♦ an issuer whose business is administered principally in the U.S.
Favorable Financial Statement Requirements for Foreign Companies
These rules allow foreign companies to provide financial statements prepared in accordance with their home country instead of GAAP so long as the financials comply with International Financial Reporting Standards (“IFRS”).
Choice of Domicile for Foreign Companies in Going Public Transactions
When going public in the U.S., foreign companies can select the domicile of their company. A Foreign company can select its home country, another country or a particular state in the U.S.  In some instances, it may be benficial for a foreign company to establish a U.S. company as a subsidiary and register the subsidiary’s securities.  Alternatively, a foreign company may elect to establish a U.S. corporation and make the foreign company a wholly-owned subsidiary of the US corporation.
Raising Capital Options for Foreign Companies in Going Public Transactions
Like domestic issuers, foreign companies have access to several means of raising capital during the going public process.   Foreign companies qualify to use the exemptions from registration provided by Rule 504, Rule 505 and Rule 506 of Regulation D of the Securities Act as well as Regulation S, for their securities offerings.
SEC Registration Options for Foreign Issuers
Foreign issuers who go public in the U.S using an underwriter can register an initial public offering (“IPO) on Form F-1.   Foreign companies are also eligible to conduct direct public offerings (“Direct Public Offering”) which allows the company to raise capital by selling securities directly to investors without the use of an underwriter.  Like an IPO, foreign companies conducting Direct Public Offerings are eligible to register a securities offering on Form F-1. Using F-1 allows the foreign company to take advantage of the SEC rules for foreign companies providing for the use of financial statements that comply with IFRS.
For foreign companies, registering a securities offering with the SEC on a registration statement such as Form F-1 eliminates many of the risks and expenses associated with reverse merger transactions and public shell companies  as well as the stigma that has plagued going public transactions involving foreign issuers in recent years.
Dual Listings for Foreign Companies
For foreign companies that are public in another country, dual listing in the U.S. provides many benefits.  These benefits include piggy back listings on other exchanges such as the Berlin Stock Exchange.
American Depository Receipts
ADR’s can trade on the OTCMarkets, NASDAQ or other exchanges. If a company trades as an over-the-counter ADR American Depository Receipt, it will not be required to provide audited financials.  With ADR offerings, the foreign company deposits its shares with a U.S. depositary bank. The bank holds these American Depositary Shares, or ADS’s, and issues receipts-ADR’s. The deposit agreement between a foreign company and a U.S. depositary bank creates a sponsored ADR program. This deposit agreement is filed with the SEC using Form F-6, which was designed for foreign issuers.
Benefits of U.S. Listings for Foreign Companies
There are many benefits for foreign companies going public in the U.S.
♦ access to the U.S. capital markets, which remain the largest and most liquid in the world;
♦ increased visibility and prestige associated with the U.S. markets; and
♦ ability to attract and retain key employees by offering them the company’s  securities through equity-based compensation structures.
For foreign companies that qualify as foreign private issuers additional benefits include, but are not limited to, the ability to file annual reports on Form 20-F (or Form 40-F for Canadian companies) instead of Form 10-K, and the option to prepare financial statements in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), International Financial Reporting Standards (“IFRS”) or the company’s home country’s GAAP.

This informational memorandum about Going Public Options for Foreign Companies is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney

101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432 
Telephone: (561) 416-8956
Facsimile: (561) 416-2855 
www.SecuritiesLawyer101.com

How Rule 6490 Impacts Going Public Transactions


Smooth Sailing for Companies Avoiding Reverse Mergers in their Going Public Transactions
 FINRA Rule 6490, has evolved since it was enacted over two years ago. For some time, FINRA has required that issuers provide expansive disclosures and supporting documentation not only for the corporate change subject to the notice but for the company’s entire corporate history from inception.
These disclosures are required of both SEC reporting and non-reporting issuers if they undertake corporate actions. Compliance with Rule 6490′s requirements is a minor task for companies going public by filing a registration statement with the SEC.

DTC Easy Street

Companies filing registration statements rarely have difficulties obtaining DTC eligibility. The public filings of companies who register with the SEC contain most of the supporting documentation required by Rule 6490. It is no surprise that compliance with the requirements of Rule 6490 is less burdensome for companies going public using a registration statement because these companies have fewer corporate changes in their company history than companies engaging in reverse mergers. This is especially true for reverse merger issuers who undergo multiple changes of control and periods of inactivity.

The Problem with Reverse Mergers & Disclosure under Rule 6490  

For companies that engage in reverse mergers as part of their going public transaction, compliance with Rule 6490′s requirements can be impossible particularly when custodianship or receivership actions have been used by shell brokers to create public shells after years of inactivity. These companies may have multiple corporate actions related to prior changes of control and often have sketchy corporate histories. Some have even been hijacked through custodianship or receivership actions. In these circumstances, documents may be unavailable or if provided to FINRA, it could potentially result in FINRA referring the matter to the SEC’s Division of Enforcement.
These companies are almost always plagued with incomplete or fraudulent corporate records which make it extremely difficult for the post-reverse merger company to comply with FINRA Rule 6490. As a result, these companies may never get FINRA approval of the contemplated corporate action.

Timing of Notice under FINRA Rule 6490 & Application of DTC Requirements

Rule 6490 requires issuers to provide notice to FINRA at least 10 business days prior to the record date of the intended corporate action. Rule 6490 requires issuers to receive FINRA approval prior to certain corporate actions becoming effective. In addition, FINRA may also request additional documents, conduct detailed and selective reviews of the issuer submissions and cause the issuer to delay the announcement of its corporate action.

Rule 6490 Disclosures

Issuers undertaking corporate actions must notify FINRA by completing the Electronic Issuer Company-Related Action Notification Form found on FINRA’s website at www.finra.org/upc/forms.
Issuers must provide a cover letter disclosing the full corporate history for the issuer itemizing all material facts including every corporate change that has occurred from inception to present day.
FINRA requires disclosure of the following:
 Share Exchange/Purchase Agreements;
 Reverse Merger Transactions;
 Holding Corporation Reorganizations;
 Dormant Shell Revivals including custodianship and receivership actions;
 Changes of Corporate Control; and
 Reinstatement of the state of incorporation.

Documents Required by FINRA Rule 6490

Issuers should be prepared to provide the following documentation to FINRA in connection with their corporate actions:
 Stamped filed certificate of amendment;
 Notarized and executed Board of Directors resolution authorizing the corporate action subject to the notice;
 Notarized and executed shareholder approval authorizing the corporate action; New CUSIP number or confirmation that CUSIP will not change as a result of the corporate action; and
 The appointment(s) of the officer(s) listed on the Issuer Notification Form; along with executed resolutions appointing the current officers or filings previously made to the SEC, such as on Form 8-K.
Triggers for Review under FINRA RULE 6490
A FINRA review will be triggered if any of the five factors set forth in Rule 6490 are thought to be present:
 FINRA believes the forms are incomplete, inaccurate or filed without the appropriate corporate authority;
 The issuer is not current in its reporting obligations with the Securities and Exchange Commission;
 Persons involved in or related to the corporate action are the subject of pending or settled regulatory action or are under investigation by a regulatory body or are the subject of a pending criminal action related to fraud or securities law violations;
 Persons related to the corporate action are likely involved in fraudulent activities involving securities or may pose a threat to investors;
 There is significant uncertainty in the settlement and clearance process for the issuer’s securities.
Failure to Comply with FINRA Rule 6490
The corporate actions of issuers who do not comply with FINRA Rule 6490 will not be approved by FINRA and they will be charged fines for their non-compliance:
 Timely Rule 10b-17 Notification 10 business days before the Action – filing fee $200
 Late filing, but filing at least 5 calendar days before the Action – $1,000
 Late filing, but filing at least 1 business day before the Action – $2,000
 Filing on or after the Action date – $5,000.
After FINRA clearance of corporate actions under Rule 6490, issuers should expect a full review by Depository Trust Company (“DTC”) and be prepared to provide an opinion from their securities attorney as to the tradability of shares held in the name of CEDE & Co. It is during this review that many reverse merger issuers find themselves losing DTC eligibility; their securities could be added to the DTC Chill list.
Any company contemplating going public using a reverse merger must consider the potential impact Rule 6490 could have on its future corporate actions. Rule 6490 provides one more compelling reason why private companies seeking to go public should do so using a registration statement instead of a reverse merger.

This informational memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney

101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432 
Telephone: (561) 416-8956
Facsimile: (561) 416-2855 
www.SecuritiesLawyer101.com

IPO Filing and Prospectus Delivery Requirements


Under the Securities Act of 1933 as amended (the “Securites Act”),  a Company that conducts an initial public offering (“IPO”) including in a going public transaction must adequately disclose material information to investors. These disclosures include details of the Company’s business and financial condition as well as the securities the Company proposes to offer.
In going public transactions, these disclosures are most often provided in a Form S-1 Registration Statement.   Upon effectiveness of its S-1 registration statement, the Company provides potential investors with a prospectus which forms a part of the registration statement.  The prospectus contains two parts. Part I of the registration statement is the prospectus which requires that the company provide certain disclosures about its business operations, financial condition, and management. Part II contains information that doesn’t have to be delivered to investors. Financial statements included in a prospectus must be audited by a firm that is a member of the Public Company Accounting Oversight Board (“PCAOB”). SEC rules allow smaller reporting companies to provide less financial information than larger reporting issuers.
Preliminary Prospectus l Initial Public Offerings
The Company may provide a preliminary prospectus to potential investors before its registration is declared effective.   The preliminary prospectus contains substantially all of the information found in a final prospectus except pricing information.   A preliminary prospectus will include a price range instead of the final offering price of the security being offered.
Final Prospectus l Initial Public Offerings
In IPO’s, a final prospectus must be delivered to all investors with or before they purchase the security being offered. Final prospectus delivery obligations are satisfied when the Company files its final prospectus meeting the requirements of Section 10(a) of the Securities Act on the SEC’s Edgar system.

This informational memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney

101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432 
Telephone: (561) 416-8956
Facsimile: (561) 416-2855 
www.SecuritiesLawyer101.com

Due Diligence in the SEC Registration Statement Process


Private companies in going public transactions seeking to have their securities quoted on the OTCMarkets OTCQB must first become reporting with the Securities and Exchange Commission (the “SEC”).  This is typically accomplished by the private company registering a securities offering on a Form S-1 registration statement pursuant to the Securities Act of 1933, as amended (the “Securities Act”).
Form S-1 is the most common registration statement used in going public transactions.
The information required in a Form S-1 registration statement is expansive and must be complete and accurate.  The information found in a registration statement is relied upon by investors in making investment decisions.
Registration Statement Liability 
The Securities Act not only imposes liability for misstatements on the issuer filing the registration statement but imposes liability on individuals who assist in the preparation of the registration statement on the issuer’s behalf.
Section 11(a) of the Securities Act, 15 U.S.C. Section 77k(a), imposes liability in the event of a material misstatement or omission in a registration statement and provides that an investor may sue:
 Officers, directors or other members of management of the issuer;
 Persons who sign the registration statement;
♦ Persons who assist in the preparation of the registration statement; and
 Underwriters with respect to the security being registered.
Registration Statement Misstatements and Omissions
Only an issuer can register securities on a registration statement.  An issuer can register securities in a primary offering on its own behalf or in a secondary offering on behalf of its existing shareholders.
Liability of Issuers for Registration Statement Disclosures
Every issuer in an offering registered under the Securities Act is required by Securities Act, Section  6(a), Section 77k(a),  to sign the registration statement. The issuer is absolutely liable under Section 11(a) of the Securities Act for material misstatements or omissions in the registration statement, regardless of its good faith or exercise of due diligence.
Liability of Officers and Directors for Registration Statement Disclosures
The issuers principal executive officers, principal financial officer and principal accounting officer or comptroller as well as a majority of its board of directors, must sign a registration statement filed under the Securities Act.
The entire board of directors (not just those signing), principal executive officers, principal financial officer and principal accounting officer are subject to potential civil liability under Section 11(a) of the Securities Act for material misstatements or omissions in the registration statement. Additionally, any other person who controls the issuer is subject to such liability.
Liability of Shareholders for Registration Statement Disclosures
Shareholders who hold securities registered in a  registration statement under the Securities Act may under some circumstances be held liable for any material misstatements or omissions in the registration statement.
Liability of Underwriters in Registered Securities Offerings
Underwriters involved in registered securities offerings are subject to liability for material misstatements or omissions in a registration statement.
Liability of Experts for Registration Statement Disclosures
Experts, such as accounting firms, are subject to potential liability for material misstatements or omissions in any part of a registration statement purporting to be based on their authority as an experts. Experts can be held liable only if they are named as an expert with their consent in the registration statement as having prepared or certified any part of the registration statement or any report or valuation mentioned therein.
Liability of Securities Attorneys for Registration Statement Disclosures
Securities attorneys typically coordinate the going public process including the preparation of the registration statement. The issuer’s securities attorney assists management in preparing the registration statement and performing due diligence. Absent actual knowledge of misstatements or omissions, securities attorneys do not become liable for  the accuracy or completeness of the registration statement.
Due Diligence in the SEC Registration Statements Process
Directors, officers and control persons can mitigate liability by performing appropriate due diligence during the going public process if they demonstrate that after a reasonable investigation they had a reasonable basis for their belief that the registration statement was accurate and complete.  Private companies in going public transactions should engage competent securities counsel to guide them through the SEC registration statement process and related due diligence.

This informational memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney

101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432 
Telephone: (561) 416-8956
Facsimile: (561) 416-2855 
www.SecuritiesLawyer101.com

Why Both Private and Public Companies Need a Securities Attorney


Every offer and sale of securities is regulated by both state and federal securities laws. Generally, all securities offerings must be registered or exempt from federal and state securities registration laws.
Failure to comply with these laws can have significant consequences that include rescission to investors, and enforcement actions by the Justice Department or Securities and Exchcane Commission.
Taking a company public is an intricate process, and it is important to have an experienced securities lawyer who will help you navigate through the process.
Common matters for which companies and their management consult with securities lawyers include but are not limited to the following:
♦ capital structure formation in a company’s initial articles of incorporation;
♦ issuance of founders’ shares;
♦ the sale of seed stock to friends and family to fund initial operations;
♦ the issuance of promissory notes;
♦ the issuance of stock, warrants or options for advertising;
♦ the issuance of stock, warrants or options as a gift;
♦ the issuance of stock, warrants or options for products;
♦ the issuance of stock, warrants or options for manufacturing, production or other services; and
♦ the transfer, gift or sale of stock by shareholders.
In order to ensure compliance with applicable securities laws, both private and public companies should consult with a securities attorney prior to issuing shares of stock even to their founders. Once incorporation has been completed and the transition into operational status has begun, many private companies seek to raise necessary capital by going public.
Generally, small private companies go public in one of three ways:
♦ through a reverse merger with a public shell company;
♦ by filing a Form 211 with FINRA to list on the OTCMarkets OTC Pinks; or
♦ by filing a registration statement on Form S-1 with the SEC, followed by a Form 211 with FINRA to list on the OTCMarkets OTCQB.
Form S-1 is an SEC registration statement that satisfies the registration requirements of the Securities Act of 1933. It is the most commonly used federal registration statement. If you are interested in taking your company public, filing an S-1 with the SEC will provide desirable transparency to investors and your shareholders.
The Form S-1 registration statement contains basic business and financial information about the issuer as well as the specific securities offering being registered. It includes a detailed company description and financial reports, as well as discussions on a broad range of topics, from management salaries to what the company will do with the offering proceeds.
The S-1 has several sections including:
♦ risk factors;
♦ use of proceeds;
♦ dividend policy;
♦ selected historical financial data;
♦ management’s discussion and analysis of the offering; and
♦ information about principal and selling shareholders.
In order to file an S-1, the company must provide audited financial statements for the two most recent fiscal years, and unaudited financial statements for the interim periods. Additionally, a legal opinion is required from a securities attorney. Taking a company public is a complicated  process. Hamilton & Associates Securities Lawyers has the experience and background to provide all the required services to take your company public on the OTCMarkets Pink Sheets (OTC Pink Sheets), the OTCMarkets OTCQB, the NYSE (New York Stock Exchange), the NASDAQ (National Association of Securities Dealers Automated Quotations), and the AMEX (American Stock Exchange).

This informational memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney

101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432 
Telephone: (561) 416-8956
Facsimile: (561) 416-2855 
www.SecuritiesLawyer101.com

Form 10 Shells l Reverse Mergers



Form 10 Shells l Ask Securities Lawyers 101
Issuers seeking to raise capital often attempt to go public using a reverse merger with a public shell. Blank check companies that file Form 10 Registration Statements (“Form 10 Shells”) are marketed as handy vehicles private companies can use to go public easily.
Form 10 Shells are rarely a good solution or cost effective method for a private company to obtain public company status. Most Form 10 Shells are not structured properly for a publicly traded company and most do not have ticker symbols. A private company purchasing a Form 10 Shell will have to commit time and money to: (i) due diligence and completion of the reverse merger into the Form 10 Shell; (ii) notification to and approval of FINRA pursuant to Rule 6490; (iii) additional disclosures, including the filing of Form 10 information in a “Super 8-K,” the need for which is triggered by the reverse merger; and (iv) locating a sponsoring market maker to file an SEC Form 211 application to obtain a trading or ticker symbol.

The Problem with Form 10 Shells

Purchasing a Form 10 Shell does not help a private company go public; it makes the process more costly, time consuming and difficult. Often a Form 10 Shell is subject to the SEC’s reporting requirements but its securities are not publicly traded.  As such, the purchaser of the shell may incur the expenses of SEC reporting yet derive no benefit until steps have been taken to qualify it for trading including the filing of a registration statement under the Securities Act. As a result, the costs of reverse mergers into Form 10 Shells almost always exceed the time and expenses of filing a registration statement under the Securities Act.
SEC Registration Statements
All issuers qualify to file a Form S-1 registration statement  under the Securities Act and Form S-1 is the most commonly used registration statement form.  All companies qualify to register securities on Form S-1. Once a S-1 is deemed effective, a sponsoring market maker must file a Form 211 on the issuer’s behalf with the Financial Industry Regulatory Authority (“FINRA”) in order for it to obtain a ticker symbol.
The SEC provides various forms of registration statements for registering securities offerings which vary based upon the characteristics of the issuer and of the particular type of offering. .
What is a Form 10 Registration Statement?
A company can file a Form 10 registration statement under the Securities Exchange Act of 1934 (the “1934 Act”) to register an entire class of securities. A 1933 Act registration registers only a certain number of a particular class of securities.
Unlike a registration statement on Form S-1, a Form 10 also does not affect the tradability of securities. After a Form 10 registration statement becomes effective, restricted securities remain restricted and unrestricted securities remain unrestricted.
When is Form 10 Registration Required?
The 1934 Act’s Section 12(g)(1) requires any company with total assets exceeding $10,000,000 and a class of equity security held of record by five hundred or more persons to register under the Exchange Act. The measurement date for these thresholds is the last day of a company’s fiscal year. It then has 120 days from that date to register.
Any issuer may voluntarily file a Form 10 registration statement under Exchange Act Section 12(g) regardless of its assets, number of shareholders or revenues.
A Form 10 requires that the issuer disclose much of the same information required by Form S-1. This information includes, among other things, a detailed description of its business, properties, risk factors, transactions with management, legal proceedings, and executive compensation, as well as audited financial statements.
Upon filing a Form 10, the SEC may render comments to the disclosures. Regardless of whether such comments have been answered satisfactorily, a Form 10 registration statement automatically becomes effective sixty (60) days after its initial filing. Effectiveness causes the issuer to become subject to the SEC’s periodic reporting requirements.
Periodic Reporting After A Form 10 Registration Statement
Once a company has a security registered under the 1934 Act or the 1933 Act, it is required to file annual, quarterly, and current reports with the SEC. An issuer with securities registered under the 1934 Act must additionally comply with SEC proxy rules; and its directors, officers, and holders of ten percent or more of its outstanding securities must also make insider filings related to their benefitical ownership. The issuer’s securities become subject to the short-swing profit rules under Section 16 of the 1934 Act.
Getting a Ticker and Trading After Fililng A Form 10
Even though an issuer that files a Form 10 registration statement becomes subject to the reporting requirements of the 1934 Act, that does not make the company public or qualify the company for a ticker assignment from FINRA. An issuer must still satisfy other regulatory requirements and criteria to obtain a ticker and be quoted on OTCMarkets’ Pink Sheets, OTCQB, OTCQX tiers, or list on a securities exchange such as NASDAQ, the AMEX or the NYSE.
Generally, FINRA requires that the issuer have at least 25 shareholders who hold either registered shares or, with respect to Pink Sheet listed issuers, shares that have been held by non-affiliate investors for twelve months. The majority of the 25 holders must have paid cash consideration for their shares. Additionally, these shares in the aggregate should represent at least 10% of the issuer’s outstanding securities and are often referred to as the “float.” The float must also be somewhat evenly distributed without significant concentration in one or a few shareholders.  Under FINRA rules, only a sponsoring market maker can file a Form 211 (“211”).
The Solution
By undertaking a Direct Public Offering, the issuer avoids many of the expenses and risks associated with reverse merger transactions, including incomplete and sloppy records, pending lawsuits and other possible liabilities including securities violations. After a reverse merger with a Form 10 Shell, the private company is forever labeled as a shell or reverse merger issuer, which makes it much more difficult to raise capital because Rule 144 is unavailable for its investor’s resales. Issuers who go public through direct public offerings avoid the shell company and reverse merger stigma. Another advantage is that issuers who go public directly have lower costs and the added credibility associated with providing transparency by filing an S-1 registration statement with the SEC.

This informational memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTCMarkets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates Securities Lawyers. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney

101 Plaza Real South, Suite 201 South
Boca Raton, Florida 33432 
Telephone: (561) 416-8956
Facsimile: (561) 416-2855 
www.SecuritiesLawyer101.com