Legislative Proposals to Facilitate Small Business Capital Formation


In our June 2011 client memorandum, we discussed H.R. 2167, the proposed bill introduced by Representative David Schweikert (R-AZ) to increase the threshold for mandatory registration for all companies under the Securities Exchange Act of 1934 (the “Exchange Act”) from 500 persons holding equity securities of record to 1,000 persons. We also discussed a related bill, H.R. 1965, introduced in the House by Representatives Jim Himes (D-CT) and Steve Womack (R-AK) to amend Section 12(g) of the Exchange Act by raising the registration threshold from 500 to 2,000 record holders if the issuer is a bank or a bank holding company. The Himes- Womack bill would also modify the threshold for deregistration under Sections 12(g) and 15(d) of the Exchange Act for banks or bank holding companies from fewer than 300 to fewer than 1,200 shareholders as well as raise the total assets threshold from $1 million to $10 million on the last day of the company’s first fiscal year following the passage of the bill.

Since June 2011, there have been a number of legislative developments to amend the mandatory registration thresholds of Section 12(g) and related provisions. On September 21, the House Committee on Financial Services, Subcommittee on Capital Markets and Government Sponsored Enterprises (the “House Subcommittee”) held a hearing on a number of these proposals, followed, on October 5, by a House Subcommittee approval vote. The Himes-Womack bill was agreed upon by a voice vote of the House Subcommittee. The Schweikert bill, as amended, was also agreed to by a voice vote of the House Subcommittee. The amendment, offered by Representative Scott Garrett (R-NJ), removed the proposed exclusion of accredited investors from the definition of “held of record” for purposes of Section 12(g)(5). Now, the Schweikert bill excludes from the definition of “held of record” only those who receive their securities pursuant to an employee stock option or pension plan in transactions exempt from registration under Section 5 of the Securities Act of 1933 (the “Securities Act”).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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