Bill Introduced in Congress to Permit Private Companies to Stay Private for Longer

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Representative David Schweikert (R-AZ) recently introduced a bill called the "Private Company Flexibility and Growth Act," which promises to allow private companies to remain private for a longer period of time. Currently, if on the last day of a company’s fiscal year, any class of securities of the company is held of record by 500 or more shareholders and the company has total assets of more than $10 million, then it must register under the Securities Exchange Act of 1934. This brings upon it a multitude of responsibilities and obligations including filing annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and meeting proxy regulation requirements. The proposed bill would make a couple of changes. First, it would increase the shareholder limit to 999 from the existing 499. Second, accredited investors and persons who received shares pursuant to an employee compensation plan would no longer count towards the limit. The second change is the far more important one, since it will allow private companies to grow to almost a limitless size without ever being required to go public. A vast majority of the shares of private companies are issued in one of two ways: (1) private offerings made only to accredited investors and (2) shares issued to employees as compensation.

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