Currently, under Section 12(g) of the Securities Exchange Act of 1934, companies with more than $10 million in assets whose equity securities are held of record by more than 500 holders must file periodic reports with the SEC. While the $10 million threshold had been raised from time to time over the years from an original $1 million level, the 500 holders of record requirement has never been changed.
Title V of the Jumpstart Our Business Startups Act, or JOBS Act (expected to be singed into law soon by President Obama), amends Section 12(g)(1) of the Exchange Act to increase the holders of record threshold for most issues to either (i) 2,000 persons, or (ii) 500 persons who are not accredited investors. For banks and bank holding companies, the threshold number of record holders will be increased to 2,000 persons.
Title V of the JOBS Act also provides that persons holding securities received pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act of 1933 (e.g., because they were issued under Rule 701 of the Securities Act) will be excluded from being counted as holders of record for purposes of the Section 12(g) calculation. The JOBS Act notably did not otherwise alter how holders of record are determined and beneficial owners of securities who hold shares in “street name” will generally not be counted as holders of record. Shares held in “street name” by the Depository Trust Company will continue to be calculated by reference to the number of DTC participants through which shares are held, consistent with current SEC guidance, rather than the number of underlying beneficial owners.
Title VI of the JOBS Act amends Section 12(g)(4) of the Exchange Act (which permits termination of registration of any class of securities with less than 300 holders of record) and Section 15(d) (which permits suspension of periodic reporting obligations with respect to any class of securities with less than 300 holders of record) to provide for termination or suspension of reporting obligations with respect to securities of a bank or bank holding company that are held of record by less than 1,200 persons.
The impact of these changes would provide many issuers, especially banks and bank holding companies, with room to raise additional capital, without fear of triggering public company reporting requirements.