The Securities and Exchange Commission closed the book on its JOBS Act mandates this week.
On April 5, 2012, the Jumpstart Our Business Startups Act was signed into law by President Barack Obama. It required the SEC to write rules and issue studies on capital formation, disclosure and registration requirements. Subsequent rule changes affected Regulation A and Regulation D exemptions, eliminated the longstanding prohibition against general solicitation and advertising in Rule 506 and Rule 144A offerings, and permitting companies to offer and sell securities through crowdfunding as of May 16.
On Tuesday, the Commission, completing its remaining JOBS Act workload, approved amendments to revise the rules related to the thresholds for registration, termination of registration, and suspension of reporting under Section 12(g) and 15(d) of the Securities Exchange Act. These amendments implement provisions from both the JOBS Act and the similar, more recent Fixing America’s Surface Transportation Act (FAST Act).
The final rule:
Amends Exchange Act Rules that govern the procedures relating to registration and termination of registration under Section 12(g), and suspension of reporting obligations under Section 15(d), to reflect the new thresholds established by the JOBS Act and FAST Act.
Applies the definition of “accredited investor” to determinations for purposes of Exchange Act Section 12(g)(1). An issuer will make the accredited investor determination as of the last day of its fiscal year.
Amends the definition of “held of record” to provide that, when determining whether an issuer is required to register a class of equity securities with the Commission, an issuer may exclude securities held by persons who received them under an employee compensation plan in transactions exempt from, or not subject to, registration requirements of Section 5 of the Securities Act.
The Commission also established a non-exclusive safe harbor for determining holders of record which provides that:
An issuer may deem a person to have received the securities under an employee compensation plan if both met conditions of Rule 701(c)
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, 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.
As a result of JOBS Act and FAST Act changes, an issuer that is not a bank, bank holding company, or savings and loan holding company is required to register a class of equity securities if it has more than $10 million of total assets and the securities are “held of record” by either 2,000 persons, or 500 persons who are not accredited investors. Banks are required to register a class of equity securities if it has more than $10 million of total assets and the securities are “held of record” by 2,000 or more persons.
In addition, a bank, bank holding company or savings and loan holding company may terminate or suspend the registration of a class of securities under the Exchange Act if they are held by fewer than 1,200 persons.
The final rules become effective 30 days after publication in the Federal Register.