SEC Adopts Amendments to Implement JOBS Act and FAST Act Changes for Exchange Act Registration Requirements

May 4, 2016

On May 3, 2016, The Securities and Exchange Commission (SEC) announced that it was amending its rules related to the thresholds for registration, termination of registration, and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934. These amendments implement provisions of the Jumpstart Our Business Startups Act (JOBS Act) and the Fixing America’s Surface Transportation Act (FAST Act).

SEC Chair Mary Jo White stated that, “With the adoption of these amendments, the Commission has completed all of the rulemaking mandated under the JOBS Act.” The JOBS Act was signed into law a little more than four years ago. 

Section 12(g) of the Securities Exchange Act of 1934 requires issuers of securities (called “issuers” in securities law parlance) to register their securities with the SEC as soon as the issuer’s assets exceed $10 million and the holders of those securities exceed a certain threshold number. The JOBS Act and the FAST Act raised the thresholds for this registration requirement.

The SEC’s new rules:

  • Amend Exchange Act Rules 12g-1 through 12g-4 and 12h-3 which 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 the FAST Act.
  • Applying the definition of “accredited investor” in Securities Act Rule 501(a) to determinations as to which record holders are accredited investors 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.
  • Amend 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 under Exchange Act Section 12(g)(1), an issuer may exclude securities held by persons who received them under an employee compensation plan in transactions exempt from, or not subject to, the registration requirements of Section 5 of the Securities Act and in certain circumstances, held by persons who received them in exchange for securities received under an employee compensation plan.

The SEC has also created 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 the plan and the person who received the securities under the plan met conditions of Securities Act Rule 701(c); and
  • 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, the 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 these 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 under the Exchange Act 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. An issuer that is 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 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 the securities are held of record by fewer than 1,200 persons.

The SEC’s new rules will become effective 30 days after publication in the Federal Register.

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