Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Wednesday, November 27, 2013

Going Private Transactions

A public company that is fully reporting with the SEC typically has a class of securities registered with the Securities and Exchange Commission (“SEC”). Registration may be required because the company’s securities are widely held or traded on a national securities exchange such as NASDAQ.
Often times microcap issuers cannot afford the costs and time commitment of management required to be public and they envy the simplicity of privately held company status. In light of increased regulation and lack of funding opportunities, public companies are asking themselves what were we thinking?

When a publicly traded company is allowed to deregister a class of its equity securities, either because those securities are no longer widely held or because they are delisted from an exchange, this is known as “going private.”
A publicly held company may deregister its equity securities when they are held by less than 300 shareholders of record or less than 500 shareholders of record, where the company does not have significant assets. Depending on the facts and circumstances, the company may no longer be required to file periodic reports with the SEC once the number of shareholders of record drops below these thresholds.
Several different types of transactions can result in a company going private, including:
♦ The public company’s receipt of a tender offer to purchase all or most of the public company’s securities;
♦ A merger where the public company sells all or substantially all of its assets to another company; or
♦ The public company declares a reverse stock split that reduces the number of shareholders of record.
If an affiliate of the company or the company itself is engaged in one of these kinds of transactions or series of transactions that will cause a class of equity securities to become eligible for deregistration or delisting, Rule 13e-3 of the Securities Exchange Act of 1934 and Schedule 13E-3 may apply. When Rule 13e-3 applies, the company is said to be “going private” under SEC rules. While SEC rules don’t prevent companies from going private, they do require companies to provide specific information to shareholders about the transaction that caused the company to go private. In addition to a Schedule 13E-3, the company and/or the affiliates engaged in the transaction also may have to file a proxy or a tender offer statement with the SEC.
When one of the kinds of transactions listed above involving a company or its affiliates results in a company’s publicly held securities becoming delisted from a national securities exchange or an inter-dealer quotation system of any national securities association, Rule 13e-3 and Schedule 13E-3 may also apply.
Schedule 13E-3 requires a discussion of the purposes of the transaction, any alternatives that the company considered, and whether the transaction is fair to unaffiliated shareholders. The Schedule also must disclose whether and why any of its directors disagreed with the transaction or abstained from voting on the transaction and whether a majority of directors who are not company employees approved the transaction.
Going private transactions require shareholders to make difficult decisions. To protect shareholders, some states have adopted corporate takeover statutes that provide shareholders with dissenter’s rights. These statutes provide shareholders the opportunity to sell their shares on the terms offered, to challenge the transaction in court, or to hold on to the shares. Once the transaction is concluded, remaining shareholders may find it very difficult to sell their retained shares because of a limited trading market.
For further information about this article, please visit and or contact Brenda Hamilton, Securities Attorney, 101 Plaza Real South, Suite 201 S, Boca Raton, Florida 33432, at (561) 416-8956 or by email This information 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, Rule 144, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings, please contact Hamilton and Associates at (561) 416-8956 or Please note that the prior results discussed herein do not guarantee similar outcomes.

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