A public company with a class of securities registered under Section 12 or which is subject to Section 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) must file Section 13 reports with the SEC (10-K, 10-Q and 8-K). A company becomes subject to Section 15(d) by filing a registration statement under the Securities Act of 1933, as amended (“Securities Act”) such as a Form S-1. A company registers securities under Section 12 by filing an Exchange Act registration statement such as on Form 10, Form 20-F or Form 8-A.
The Section 15(d) reporting requirements are scaled down from the Exchange Act reporting requirements for a company with a class of securities registered under Section 12. In particular, a company that is only subject to Section 15(d) need only comply with the Section 13 reporting obligations and need not comply with the federal proxy rules and third-party tender offer rules in Section 14, the officer/director and 10% shareholder reporting requirements in Section 16 or the 5% or greater shareholder reporting requirements in Sections 13(d), (g) and (f) of the Exchange Act.
This blog addresses suspending the duty to file reports under Section 15(d) and determining voluntary filer status. In a separate blog I will discuss the termination of registration under Section 12.
Suspension of Reporting Obligations
The duty to file reports under Section 15(d) can only be suspended and not terminated. To the contrary, registration under Section 12, and accordingly the requirement to file reports as a Section 12 registrant, can be terminated. However, even if a Section 12 reporting obligation is terminated, a Section 15(d) obligation remains, and even if temporarily suspended, can be resurrected when the fact basis for suspension changes.
The duty to file reports under Section 15(d) is automatically suspended: (i) If the company has a class of securities registered under Section 12 of the Exchange Act and is thus separately subject to the reporting requirements due to that registration; or (ii) on the first day of any fiscal year, other than the fiscal year in which a Securities Act registration statement became effective, in which the company has fewer than 300 record security holders.
Exchange Act Rule 15d-6 requires that a company whose duty to file reports is suspended because they have fewer than 300 shareholders as of the first day of their fiscal year-end, file a Form 15 within 30 days of the beginning of the fiscal year to inform the SEC of the suspension of the duty. SEC C&DI confirms that this notice is not a condition to the automatic suspension. In practice, very few companies actually file a Rule 15d-6 Form 15. Moreover, in practice, many companies voluntarily continue to file SEC reports even though the duty to do so has been statutorily suspended.
In addition, the duty to file reports may be voluntarily suspended, at any time, by the filing of a Form 15 upon meeting certain conditions. Exchange Act Rule 12h-3 provides that the duty to file reports under Section 15(d) is immediately suspended upon the filing of a Form 15 if the company has filed all SEC reports for the shorter of the prior three fiscal years and stub periods to date or since the company became SEC filing if the prerequisite conditions are met. If the Form 15 is subsequently withdrawn or denied, the company has 60 days to file any SEC reports not filed following the filing of the Form 15.
In addition to being current in SEC reporting at the time of filing a Form 15, in order to qualify to voluntarily suspend reporting obligations, the company must (i) have fewer than 300 shareholders of record or, if a bank holding company, have fewer than 1,200 shareholders of record; or (ii) have fewer than 500 shareholders of record and less than $10 million in assets on the last day of each of the company’s three most recent fiscal years.
A company may not voluntarily suspend Section 15(d) reporting obligations in reliance on Rule 12h-3 during a fiscal year in which a Securities Act registration statement goes effective or a company is required to file a Section 10(a)(3) prospectus update. Furthermore, a company cannot rely on the fewer than 500 shareholders and less than $10 million in assets provision if a Securities Act registration statement went effective or required a Section 10(a)(3) update in the succeeding two fiscal years. The rule specifically provides that these timing conditions do not apply for certain holding company restructures where the company has no significant assets and shares are issued pro rata. Moreover, the SEC has provided interpretative guidance with certain carve-outs to the rule.
A Section 10(a)(3) prospectus update is required to be filed to maintain the effectiveness of a Securities Act registration statement used for a continuous offering or under which securities may be offered from time to time. A Form S-3, Form S-8 and, in some instances, a Form S-1 can be used as shelf registrations that automatically forward incorporate Exchange Act reports by reference such that an annual Form 10-K acts as a post-effective amendment and Section 10(a)(3) update (for more on incorporation by reference, see HERE). If a company has an open Securities Act registration statement, it would not be able to file a Form 15 to voluntarily suspend reporting obligations unless it first filed a post-effective amendment to the registration statement to deregister any unsold shares or, if no shares had been sold, an application to withdraw the registration statement.
Analyzing the ability to file a Form 15 under Rule 12h-3 has resulted in the filing of numerous no-action letters, numerous compliance and disclosure interpretations, and the publication of SEC Staff Legal Bulletin No. 18 to provide guidance. The SEC has consistently found that a Rule 12h-3 Form 15 can be filed in a year in which a registration statement was declared effective or required to be updated under Section 10(a)(3) when all of the other conditions of Rule 12h-3 are met and where (i) a public offering is abandoned, no securities are sold under the effective registration statement and the company files a Rule 477 application to withdraw the registration statement; or (ii) the company is acquired resulting in the class of registered securities either being extinguished or held by only one record holder which is the acquiring entity. In both situations, the company has no public shareholders eliminating the purpose of requiring reporting. The SEC will not allow this concession to the rule where the company will continue to file SEC reports in any event such as voluntarily or as a result of a contractual obligation.
As an aside, when a Form 15 is filed to terminate registration under Section 12, only the duty to file reports under Section 13 is immediately terminated. The duty to file reports in accordance with the Section 14 proxy and tender offer rules, Section 16 officer/director and 10% shareholder and Section 13 5% or greater shareholder reporting does not terminate until 90 days after the filing of a Form 15. As noted above, a Section 15(d) company is not subject to those particular reporting obligations anyway.
The suspension of a duty to file reports is not a legal “termination” but rather is only a suspension. SEC Rule 12h-3 specifically provides that if a company no longer meets the legal requirements for an automatic suspension, or voluntary suspension, on the first day of its fiscal year, then the company must resume periodic reporting pursuant to Section 15(d) by filing an annual report on Form 10-K for its preceding year, not later than 120 days after the end of such fiscal year.
Determining Voluntary Filer Status
First, a company with a class of securities registered under Section 12 of the Exchange Act is never a voluntary filer. Assuming a company is not a Section 12 registrant, if the duty to file reports is automatically or voluntarily suspended and the company continues to file reports, that company is considered a voluntarily filer.
Securities Act Rule 144 sets forth certain requirements for the use of Section 4(a)(1) for the resale of securities. Rule 144 requires compliance with certain conditions, including a holding period. The length of the holding period is determined by whether the public company “has been for a period of at least 90 days immediately before the sale, subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.” The holding period for a company that is subject to the reporting requirements is six months as opposed to one year for one that is not. A voluntary filer is not subject to the reporting requirements and therefore is subject to the longer one-year hold period. Accordingly, in order for a shareholder to calculate its required holding period under Rule 144, the shareholder (and any attorney writing a Rule 144 opinion letter) must determine whether the company is subject to the Exchange Act reporting requirements.
From a practical standpoint, there are some shortcuts for determining voluntary status. A company that files reports under Section 15(d) will have an SEC “File/Film Number” that begins with “333” (whereas a company that has a class of securities registered under Section 12 will have a number that begins with “000” or sometimes “001” or “005”). Upon quickly assessing if a company is a 15(d) filer, a practitioner should determine if a Securities Act registration statement was declared effective in the current fiscal year (not a voluntary filer) and if not, whether the company had fewer than 300 shareholders as of the first day of its current fiscal year (if less, voluntary). The latter answer generally must come from the company or the transfer agent.
If the company is not determined to be a voluntary filer based on the above, then it would only be a voluntary filer if it filed a Form 15 under Rule 12h-3. Even if a company meets the requirements and could voluntarily file a Form 15 at any time under Rule 12h-3, it would still be subject to the reporting requirements until it does so.
Determining Holder of Record
The calculation of shareholders of record for purposes of Section 15(d) and Rule 12h-3 is made in accordance with Exchange Act Rule 12g5-1. Generally each entity or custodian shareholder is counted as a single shareholder. That is, a broker, dealer, bank or nominee may be counted as a single shareholder, even if they hold shares on behalf of several different beneficial shareholders. In addition, persons that received the securities under an employee compensation plan that was exempt from U.S. registration may be excluded. Securities issued in a Regulation A, Tier 2 offering may also be excluded.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
LAnthony@AnthonyPLLC.com
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including sitting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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