A public company with a class of securities registered under either Section 12 or which is subject to Section 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) must file reports with the SEC (“Reporting Requirements”). The underlying basis of the Reporting Requirements is to keep shareholders and the markets informed on a regular basis in a transparent manner. Reports filed with the SEC can be viewed by the public on the SEC EDGAR website. The required reports include an annual Form 10-K, quarterly Form 10Q’s and current periodic Form 8-K as well as proxy reports and certain shareholder and affiliate reporting requirements.
A company becomes subject to the Reporting Requirements by filing an Exchange Act Section 12 registration statement on either Form 10 or Form 8-A. A Section 12 registration statement may be filed voluntarily or per statutory requirement if the issuer’s securities are held by either (i) 2,000 persons or (ii) 500 persons who are not accredited investors and where the issuer’s total assets exceed $10 million. In addition, companies that file a Form S-1 registration statement under the Securities Act of 1933, as amended (“Securities Act”) become subject to Reporting Requirement; however, such obligation becomes voluntary in any fiscal year at the beginning of which the company has fewer 300 shareholders.
A reporting company also has record keeping requirements, must implement internal accounting controls and is subject to the Sarbanes-Oxley Act of 2002, including the CEO/CFO certifications requirements, prohibition on officer and director loans, and independent auditor requirements. Under the CEO/CFO certification requirement, the CEO and CFO must personally certify the content of the reports filed with the SEC and the procedures established by the issuer to report disclosures and prepare financial statements.
All reports filed with the SEC are subject to SEC review and comment and, in fact, the Sarbanes-Oxley Act requires the SEC undertake some level of review of every reporting company at least once every three years.
Following are the reports that generally make up a public company’s Reporting Requirements and which are applicable to smaller reporting companies. A “smaller reporting company” is an issuer that is not an investment company or asset-backed issuer or majority-owned subsidiary and that (i) had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter; or (ii) in the case of an initial registration statement, had a public float of less than $75 million as of a date within days of the filing of the registration statement; or (iii) in the case of an issuer whose public float as calculated by (i) or (ii) is zero, had annual revenues of less than $75 million during the most recently completed fiscal year for which audited financial statements are available.
Annual Reports on Form 10-K
All smaller reporting companies are required to file an annual report with the SEC on Form 10-K within 90 days of end of its fiscal year. An extension of up to 15 calendar days is available for a Form 10-K as long as the extension notice on Form 12b-25 is filed no later than the next business day after the original filing deadline.
A Form 10-K includes the company’s audited annual financial statements, a discussion of the company’s business results, a summary of operations, a description of the overall business and its physical property, identification of any subsidiaries or affiliates, disclosure of the revenues contributed by major products or departments, and information on the number of shareholders, the management team and their salaries, and the interests of management and shareholders in certain transactions. A Form 10-K is substantially similar to a Form 10 registration statement and updates shareholders and the market on information previously filed in a registration statement, on an annual basis.
Quarterly Reports on Form 10-Q
All smaller reporting companies are required to file a quarterly report on Form 10-Q within 45 days of end of each of its fiscal quarters. An extension of up to 5 calendar days is available for a Form 10-Q as long as the extension notice on Form 12b-25 is filed no later than the next business day after the original filing deadline.
The quarterly report includes unaudited financial statements and information about the company’s business and results for the previous three months and for the year to date. The quarterly report compares the company’s performance in the current quarter and year to date to the same periods in the previous year.
Current Reports on Form 8-K
Subject to certain exceptions, a Form 8-K must be filed within four (4) business days after the occurrence of the event being disclosed. No extension is available for an 8-K. Companies file this report with the SEC to announce major or extraordinary events that shareholders should know about, including entry into material agreements; mergers and acquisitions; change in control; changes in auditors; the issuance of unregistered securities; amendments in company articles or bylaws; company name changes; issues with reliance on previously issued financial statements; changes in officer or directors; bankruptcy proceedings; change in shell status regulation F-D disclosures and voluntary disclosures (voluntary disclosures have no filing deadline).
The Fair Disclosure Regulation, enacted in 2000 (“Regulation FD”), stipulates that publicly traded companies broadly and publicly disseminate information instead of distributing it selectively to certain analysts or investors only. Companies are encouraged to use several means of information dissemination including Form 8-K, news releases, Web sites or Web casts, and press releases. A Form 8-K under Regulation FD must be filed (i) simultaneously with the release of the material that is subject of the filing (generally a press release); or (ii) the next trading day.
Other than when there has been a change of shell status, the financial statements of an acquired business must be filed no later than 71 calendar days after the date the initial Form 8-K was filed reporting the closing of the business acquisition (which initial Form 8-K is due with 4 days).
Consequences and Issues Related to Late Filing
Late filings carry severe consequences to small business issuers. Generally the shareholders of late filing issuers cannot rely on Rule 144 for the sale or transfer of securities while the issuer is delinquent in its filing requirements. Rule 144(c) requires that adequate current public information with respect to the company must be available. The current public information requirement is measured at the time of each sale of securities. That is, the issuer, whether reporting or non-reporting, must satisfy the current public information requirements as set forth in Rule 144(c) at the time that each resale of securities is made in reliance on Rule 144. For reporting issuers, adequate current public information is deemed available if the issuer is, and has been for a period of at least 90 days immediately before the sale, subject to the Exchange Act reporting requirements and has filed all required reports, other than Form 8-K, and has submitted electronically and posted on its website, if any, all XBRL data require to be submitted and posted.
An issuer that is late or has failed to maintain its Reporting Requirements is disqualified from use of Form S-3, which is needed to conduct at the market direct public offerings, shelf registrations and types of registered securities. Likewise, a Form S-8 cannot be filed while an issuer is either late or delinquent in its Reporting Requirements. Late or delinquent filings may also trigger a default in the terms of contracts, including corporate financing transactions. Finally, the SEC can bring enforcement proceedings against late filers, including actions to deregister the securities.
All companies with securities registered under the Exchange Act (i.e., through the filing of a Form 10 or Form 8-A) are subject to the Exchange Act proxy requirements found in Section 14 and the rules promulgated thereunder. Companies required to file reports as a result of an S-1 registration statement that have not separately registered under the Exchange Act are not subject to the proxy filing requirements. The proxy rules govern the disclosure in materials used to solicit shareholders’ votes in annual or special meetings held for the approval of any corporate action requiring shareholder approval. The information contained in proxy materials must be filed with the SEC in advance of any solicitation to ensure compliance with the disclosure rules.
Solicitations, whether by management or shareholder groups, must disclose all important facts concerning the issues on which shareholders are asked to vote. The disclosure information filed with the SEC and ultimately provided to the shareholders is enumerated in SEC Schedules 14A.
Where a shareholder vote is not being solicited, such as when a company has obtained shareholder approval through written consent in lieu of a meeting, a company may satisfy its Section 14 requirements by filing an information statement with the SEC and mailing such statement to its shareholders. In this case, the disclosure information filed with the SEC and mailed to shareholders is enumerated in SEC Schedule 14C. As with the proxy solicitation materials filed in Schedule 14A, a Schedule 14C Information Statement must be filed in advance of final mailing to the shareholder and is reviewed by the SEC to ensure that all important facts are disclosed. However, Schedule 14C does not solicit or request shareholder approval (or any other action, for that matter), but rather informs shareholders of an approval already obtained and corporate actions which are imminent.
In either case, a preliminary Schedule 14A or 14C is filed with the SEC, who then reviews and comments on the filing. Upon clearing comments, a definitive Schedule 14A or 14C is filed and mailed to the shareholders as of a certain record date.
Generally, the information requirements in Schedule 14C are less arduous those in a Schedule 14A in that they do not include lengthy material regarding what a shareholder must do to vote or approve a matter. Moreover, the Schedule 14C process is much less time-consuming, as the shareholder approval has already been obtained. Accordingly, when possible, companies prefer to utilize the Schedule 14C Information Statement as opposed to the Schedule 14A Proxy Solicitation.
Reporting Requirements for Company Insiders
All executive officers and directors and 10%-or-more shareholders of a company with securities registered under the Exchange Act (i.e., through the filing of a Form 10 or Form 8-A) are subject to the Exchange Act Reporting Requirements related to the reporting of certain transactions. The initial filing is on Form 3 and is due no later than ten days of becoming an officer, director, or beneficial owner. Changes in ownership are reported on Form 4 and must be reported to the SEC within two business days. Insiders must file a Form 5 to report any transactions that should have been reported earlier on a Form 4 or were eligible for deferred reporting. If a form must be filed, it is due 45 days after the end of the company’s fiscal year.
Other federal securities laws and SEC rules require disclosures about a variety of events affecting the company. Under the Exchange Act, parties who will own more than five percent of a class of the company’s securities after making a tender offer for securities registered under the Exchange Act must file a Schedule TO with the SEC. The SEC also requires any person acquiring more than five percent of a voting class of a company’s Section 12 registered equity securities directly or by tender offer to file a Schedule 13D. Depending upon the facts and circumstances, the person or group of persons may be eligible to file the more abbreviated Schedule 13G in lieu of Schedule 13D.
Termination of Reporting Requirements
To deregister and suspend Reporting Requirements, an eligible issuer can file a Form 15. To qualify to file a Form 15, an issuer must either have (i) fewer than 300 shareholders; or (ii) fewer than 500 shareholders and the issuer’s assets do not exceed $10 million.
Laura Anthony, Esq.
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC 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 as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of 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; Regulation A/A+ offerings; 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 MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC 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 OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
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