On May 3, 2016, the SEC adopted a final rule that amends the thresholds for registration, termination of registration, and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934. These rules implement provisions of the Jumpstart Our Business Startups Act (JOBS Act) and the Fixing America’s Surface Transportation Act (FAST Act), and, with the adoption of these amendments, the SEC has implemented all of the mandates required by the JOBS Act.
Tuesday, May 10. 2016
Summary of the Final Rule
Amendments to Exchange Act Rules 12g-1 through 12g-4 and 12h-3
The amendments to Rules 12g-1 through 12g-4 and Rule 12h-3 reflect the new higher thresholds set forth by the JOBS Act and the FAST Act. These rules govern the procedures relating to the registration and termination of registration under Section 12(g), and the suspension of reporting obligations under Section 15(d) as follows:
– The amended Rule 12g-1 provides that an issuer is not required to register a class of equity securities pursuant to Section 12(g)(1), if on the last day of its most recent fiscal year:
- it had total assets not exceeding $10 million; or
- the class of equity securities was “held of record” by fewer than 2,000 persons or 500 persons who are not accredited investors; or
- in the case of a bank, a savings and loan holding company or a bank holding company, the class of equity securities was “held of record” by fewer than 2,000 persons.
– The amended Rule 12g-2, which establishes a 300-person threshold for securities to be registered under Section 12(g), and Rule 12g-3, which addresses the 300-person threshold for the registration of securities of successor issuers under Section 12(b) or Section 12(g), both now provide a 1,200- person registration threshold for a bank, a savings and loan holding company or a bank holding company.
– The amended Rule 12g-4(a) provides that termination of registration under Section 12(g) shall take effect in 90 days after the issuer certifies on Form 15 that the class of securities is held of record by fewer than 300 persons or 1,200 persons in the case of a bank, a savings and loan holding company or a bank holding company or 500 persons where the total assets of the issuer have not exceeded $10 million on the last day of each of the preceding three years. As a result of these changes, banks, savings and loan holding companies and bank holding companies will be able to terminate registration of a class of securities and suspend immediately their duty to file current and periodic reports upon filing a certification on Form 15 at the 1,200 person threshold.
– The amended Rule 12h-3 provides that the duty to file current and periodic reports under Section 13(a) pursuant to Section 15(d) for that class of securities is suspended immediately upon the filing of a certification on Form 15, provided that the following conditions are met:
- the issuer has fewer than 300 holders of record, 500 holders of record where the issuer’s total assets have not exceeded $10 million on the last day of each of the preceding three years, or in the case of a bank, a savings and loan holding company or bank holding company, 1,200 holders of record;
- the issuer has filed its Section 13(a) reports for the most recent three completed fiscal years, and for the portion of the year immediately preceding the date of filing the Form 15 or the period since the issuer became subject to the reporting obligation; and
- a registration statement 12 has not become
effective or was required to be updated pursuant to Exchange Act Section 10(a)(3) 44 during the fiscal year.
Changes to the Application of the Definition of “Accredited Investor” in Securities Act Rule 501(a)
The SEC has adopted an amendment to Exchange Act Rule 12g-1 that will instruct issuers to use the definition of the term “accredited investor” as it is defined in Securities Act Rule 501(a) for the determinations as to which of their record holders are accredited investors for the purposes of Exchange Act Section 12(g)(1). Issuers will also make the accredited investor determination as of the last day of their fiscal year.
Amendments to Exchange Act Rule 12g5-1
The SEC amended Rule 12g5-1 to revise the definition of “held of record” and to establish a non-exclusive safe harbor. The amended definition of “held of record” provides that, when determining whether an issuer is required to register a class of equity securities with the SEC pursuant to Exchange Act Section 12(g)(1), the issuer may exclude securities that are:
- held by persons who received the securities pursuant to an employee compensation plan in transactions exempt from, or not
subject to, the registration requirements of Section 5 of the Securities Act; or
- held by persons who received the securities in a transaction exempt from, or not subject to, the registration requirements of Section 5 of the Securities Act from this issuer, a predecessor of the issuer or an acquired company in substitution or
exchange for excludable securities under Exchange Act Rule 12g5-1(a)(8)(i)(A), as long as the persons were eligible to receive securities pursuant to Rule 701(c) at the time the excludable securities were originally issued to them.
The non-exclusive safe harbor being established by the amendments provides that:
- an issuer may deem a person to have received the securities pursuant to an employee compensation plan if such plan and the
person who received the securities pursuant to the plan met the plan and participant conditions of Securities Act Rule 701(c); and
- an issuer may, solely for the purposes of Section 12(g), deem the securities to have been issued in a transaction exempt from, or not subject to, the registration requirements of Section 5 of the Securities Act if the issuer had a reasonable belief at the time of the issuance that the securities were issued in such a transaction.
This safe harbor is available for plan participants enumerated in Rule 701(c) of the Securities Act, including employees, directors, general partners, trustees, officers and certain consultants and advisors, and for permitted family member transferees.
Foreign Private Issuers
Under the adopted rules, foreign private issuers may rely on Rule 12g5-1(a)(8) when making their determination of the number of U.S. resident holders under Exchange Act Rule 12g3- 2(a). Under Rule 12g3- 2(a), foreign private issuers that meet the asset and shareholder threshold for registration under Section 12(g) are exempt from registering any class of securities under that section if the class of securities is held by fewer than 300 holders resident
in the United States. Because the rules direct issuers to the definition of “held of record” as defined in Rule 12g5-1, the SEC’s changes to Section 12(g)(5) as well as the amendment to Rule 12g5-1 also apply to the determination of a foreign private issuer’s U.S. resident holders for the purposes of the Rule 12g3- 2(a) analysis.
The final rule was published in the Federal Register on May 10, 2016 and become effective June 9, 2016.