If a company files a registration statement such as on Form 10 under Section 12 of the Exchange Act, it becomes an SEC reporting company and the company becomes subject to the same annual, quarterly, and current reporting obligations that result from Securities Act registration.
Additionally, the company’s shareholders and management become subject to various requirements discussed below upon effectiveness ofthe company’s Form 10 registration statement.
A company whose Form 10 has been declared effective must comply with the SEC’s proxy rules whenever its management submits proposals to shareholders that will be subject to a shareholder vote, usually at a shareholders’ meeting.
The proxy rules get their name from the common practice of management asking shareholders to provide them with a document called a “proxy card” granting authority to vote the shareholders’ shares at the meeting. The proxy rules require the company to provide certain disclosures in a proxy statement to its shareholders, together with a proxy card in a specified format, when soliciting authority to vote the shareholders’ shares. Proxy statements describe matters up for shareholder vote, and include management and executive compensation information if the shareholders are voting for the election of directors.
If shareholders will take action on a matter but management is not soliciting proxies, the company must provide shareholders with an information statement that is similar to a proxy statement. The proxy rules also require the company to send an annual report to shareholders if the shareholders are voting for directors. The proxy rules also govern when your company must provide shareholder lists to investors and when it must include a proposal from a shareholder in its proxy statement or information statement.
Beneficial ownership reports
If a company has registered a class of its equity securities under the Exchange Act, shareholders who acquire more than 5% of the outstanding shares of that class must file beneficial owner reports on Schedule 13D or 13G until their holdings drop below 5%. These filings contain background information about the shareholders who file them as well as their investment intentions, providing investors and the company with information about accumulations of securities that may potentially change or influence company management and policies.
Transaction reporting by officers, directors and 10% shareholders
Section 16 of the Exchange Act applies to an SEC reporting company’s directors and officers, as well as shareholders who own more than 10% of a class of the company’s equity securities registered under the Exchange Act. The rules under Section 16 require these “insiders” to report most of their transactions involving the company’s equity securities to the SEC within two business days.
Section 16 also establishes mechanisms for a company to recover “short swing” profits, or profits an insider realizes from a purchase and sale of the company’s security that occur within a six-month period. In addition, Section 16 prohibits short selling by insiders of any class of the company’s securities, whether or not that class is registered under the Exchange Act.
Loans to directors and officers
Section 13(k) of the Exchange Act prohibits SEC reporting companies from making personal loans to their directors and officers. Loans made in the ordinary course of business at market rates by issuers that are financial institutions or in the business of consumer lending are excepted from the prohibition.
The SEC’s tender offer rules apply to transactions in which a public company faces a third-party tender offer or “takeover.” The rules also apply if a public company makes a tender offer for its own securities. The filings required by these rules provide information to the holders of the securities about the person making the tender offer and the terms of the offer. The company that is the subject of a takeover must file its responses to the tender offer with the SEC. The rules also set minimum time periods for the tender offer and provide other protections to shareholders.
If your company lists its securities on a securities exchange such as the Nasdaq or New York Stock Exchange, it will be subject to the rules or “listing standards” governing all companies listed on that exchange, including rules on corporate governance and audit committees. Companies whose securities are not listed on an exchange but are traded only through the facilities of the OTC Bulletin Board or OTC Markets Group’s OTC Link typically are not subject to additional standards on corporate governance and audit committees.
Employees of SEC reporting companies may not be discharged or disciplined for providing information to authorities on possible fraud against the company’s shareholders. In 2011, the SEC established the Office of the Whistleblower as required under Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act directs the SEC in certain circumstances to make monetary awards to eligible individuals who voluntarily provide information that leads to successful SEC enforcement actions.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email firstname.lastname@example.org or visit www.securitieslawyer101.com.
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