Federal Securities Law Blog : Federal Securities Lawyer & Attorney : Porter Wright Law Firm : Securities Exchange Law : Serving Ohio, Washington DC, Florida

The financial reform bill calls for the SEC to write proxy access rules that would give shareholders the ability to use the company’s proxy statement to nominate candidates for the board of directors.  Currently, shareholders who wish to solicit votes for nominees must prepare and send their own proxy statement, which is expensive and rarely attempted.  Some senators had proposed only allowing proxy access for shareholders holding 5% or greater of a company's shares, but it appears negotiations have reverted to the original language of the bill, which does not specify a minimum holding requirement.  When the SEC last proposed proxy access rules in 2009, the language contained minimum holding requirements of between one and five percent depending on the size of the company.

In the midst of financial reform negotiations in Congress, several questions remain about proxy access, which is not a focus of the bill:

• What should be the minimum holding period to allow shareholders proxy access?
• What should be the minimum ownership requirement?
• Should directors elected via proxy access rules be required to own stock in the company?
• Should long-term investors with small holdings be treated the same as large investors?

The financial reform bill will likely answer the question of whether the SEC has authority to create proxy access rules with a resounding yes, but the specifics of proxy access will likely be at the discretion of the Commission.

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We are pleased to share with our Federal & Securities Law Report friends that Chambers USA has ranked Porter Wright’s Corporate/M&A practice among the leading practices in Ohio in their most recent report.

To read about our review, please click here:

Corporate/M&A - Ohio

Chambers USA also ranked three of our attorneys individually for their experience and reputation in Corporate/M&A Law.

Curtis Loveland - Corporate/M&A - Ohio
Theodore D Grosser - Corporate/M&A  --Ohio
Mark Koogler - Corporate/M&A - Ohio

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Many community banks under pressure to raise capital are considering selling new shares of stock to investors; however, doing so may cause some banks to be required to register under Section 12(g) of the Securities Exchange Act of 1934. The Act provides that even if a company has never made a public offering of stock, it must register its stock with the SEC if has more than $10 million in assets and 500 shareholders of record. Once registered, the company must comply with the SEC’s costly periodic reporting requirements.

Even the smallest of banking organizations typically have more than $10 million in assets so the important requirement to avoid registration is to remain below 500 shareholders of record. As banks seek new investors, remaining below the threshold becomes difficult.

The American Bankers Association has long argued that the 500 shareholders threshold should be raised to somewhere between 1,500 and 3,000.  The ABA argues that when the 500 shareholders threshold was set in 1964, the number of investors in the marketplace and the market presence of 500 shareholders were 3-6 times smaller than they are now. Thus, the 500 shareholders threshold should be increased 3-6 times. The ABA laments that many community banks have had to redeem stock at the expense of capital to reduce the number of their shareholders of record to below 300, the requirement to deregister under the Exchange Act.

The SEC has considered updating the 500 shareholders threshold at various times since 1996 but has not yet done so. Community banks eager to raise capital without burdensome SEC reporting costs continue to push for change.
 

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