The Securities and Exchange Commission has issued a small entity compliance guide to help small companies comply with new proxy statement disclosure rules effective February 28, 2010 requiring information about board structure, corporate governance, director qualifications, and compensation.

The guide does not specifically define what constitutes a small entity, but in general the SEC characterizes small entities as those that have a public float of less than $75 million (computed by multiplying the total number of outstanding shares held by non-affiliates by the stock price) or annual revenues of less than $50 million.

The guide summarizes the new proxy statement disclosure rules that apply to small companies, which are described below:

Disclosures Regarding Board of Directors

  • Disclose for each director and nominee the particular experience, qualifications, attributes or skills that led the company’s board to conclude that the person should serve as a director of the company.
  • Disclose any public company directorships held by each director and nominee during the past five years (the previous rule required disclosure of current positions only).
  • The types of legal proceedings involving directors and nominees that must be disclosed have been expanded to include, among others, any proceedings based on violations of banking or insurance laws and any disciplinary sanctions imposed by self-regulatory organizations. Such disclosures must cover the past ten years (the previous rule was concerned with only the past five years).
  • Disclose how diversity is considered in identifying director nominees (the term “diversity” is not defined).
  • Describe the board’s leadership structure, including whether the same person serves as both chairman and chief executive officer and whether the board has a lead independent director and why such structure is appropriate.
  • Describe the extent of the board’s role in the risk oversight of the company and what effect such role has on the board’s structure.

Disclosures Regarding Compensation

  • The value of awards of stock and options should be reported in the summary compensation table as the aggregate grant date fair value in accordance with FASB ASC Topic 718 (the previous rule required disclosure of the amount recognized for financial statement reporting purposes).
  • For stock and option awards that are subject to performance conditions, disclose in the summary compensation table the value at the grant date based upon the probable outcome of such conditions and disclose by footnote the grant date value of the award assuming the highest level of performance conditions will be achieved.
  • If the board has engaged a compensation consultant for compensation advice and the consultant also provides additional services in excess of $120,000 per year, disclose the fees for the additional services and the compensation services. Disclose whether the decision to hire the consultant was made or recommended by management and whether the board approved of such additional services.

Voting Results for Shareholder Meetings

  • Shareholder voting results must now be disclosed on Form 8-K within four business days after the shareholder meeting at which the vote was held (the previous rule required disclosure on the next Form 10-Q or 10-K for the time period in which the vote took place).

The small entity compliance guide is available on the SEC’s website at www.sec.gov/rules/final/2009/33-9089-secg.htm.