Many private equity sponsors have been or are considering undertaking an initial public offering of a portfolio company. In negotiating stockholder arrangements and committee assignments for their director representatives after a portfolio company completes an IPO, sponsors should consider recently adopted changes to stock exchange listing rules that affect committee membership and other rules promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”), that may affect the ability of sponsor-nominated directors to serve on certain board committees or to satisfy the independence standards imposed by the stock exchanges.
For a listed company that is not a controlled company (that is, more than 50% of the company’s voting power for the election of directors are held by an individual, group or another company), both the New York Stock Exchange (“NYSE”) and Nasdaq require that the board of directors consist of a majority of independent directors. More stringent independence standards apply to service on the audit committee and, upon effectiveness of the recently adopted changes to the NYSE and Nasdaq listing rules, to service on the compensation committee of issuers that are not controlled companies.
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