JOBS Act Establishes New Thresholds for Registration Under the Exchange Act May 9, 2012

by Foley Hoag LLP

[authors: Paul Bork, Dean F. Hanley, and Jason Steinman]

On April 5, 2012, the JOBS Act was signed into law, culminating a bipartisan effort by Congress to ease restrictions on capital raising that have affected and guided companies and investors for decades. This alert focuses on the changes effected by the JOBS Act to the registration and deregistration thresholds under the Securities Exchange Act of 1934 (the “Exchange Act”), and incorporates the additional guidance provided by the SEC Division of Corporation Finance on April 11, 2012, regarding certain practical implications of these changes for bank holding companies and non-bank issuers. These changes provide new opportunities for issuers to raise capital without registering under the Exchange Act and incurring the reporting and compliance obligations incident to registration.

Registration Under the Exchange Act
Previously, a company with total assets exceeding $10,000,000 with a class of equity security “held of record” by 500 or more holders was required to register under the Exchange Act, even if the company has never sold securities publicly. Registering under the Exchange Act subjects an issuer to filing annual and quarterly reports, to disclosure and to procedures with respect to solicitation of shareholder votes and effecting certain transactions with shareholders. The JOBS Act raises the registration threshold to 2,000 holders for banks and bank holding companies and to 500 non-accredited investors or 2,000 holders for other issuers. These increased thresholds allow companies to issue unregistered securities to an increased number of accredited investors, and, in the case of banks and bank holding companies, to unaccredited investors as well. The JOBS Act does not reference how changes in an investor’s accredited status should be handled, an issue which the SEC is likely to address in subsequent rule-making.

Holders of Record
The JOBS Act amends the definition of “held of record” to exclude securities held by persons who received such securities pursuant to an employee compensation plan in transactions exempt from the registration requirements of the Securities Act. The JOBS Act also directs the SEC to adopt safe harbor provisions to allow issuers to determine that securities are held by holders who received them pursuant to an employee compensation plan and that such securities were received in transactions exempt from the registration requirements of the Securities Act. A major unresolved issue, which is likely to be addressed by the SEC, is the extent to which holders of securities received pursuant to an employee compensation plan and subsequently transferred, through inheritance or otherwise, may properly be excluded. The Division of Corporation Finance indicated initially that holders of securities received pursuant to an employee compensation plan may be excluded although the holder’s employment with the issuer has ceased.

The term “held of record,” continues to disregard beneficial holders who hold securities through nominees, such as brokerage firms and banks, counting only the securities intermediaries in whose name the securities are held, although the SEC retains the authority to count the beneficial holders if the form in which the securities are held is knowingly used to circumvent registration. The JOBS Act commissions an SEC study to determine if additional enforcement tools are needed to enforce this substance-over-form authority.

Effects on Pending Registration Obligations
For an issuer with a registration obligation triggered as of a fiscal year-end before the passage of the JOBS Act (April 5, 2012) that would not trigger a registration obligation under the amended holders of record threshold in the JOBS Act, the Division of Corporation Finance indicated that (a) if the issuer had not filed an Exchange Act registration statement with respect to such securities, such issuer was no longer required to do so, (b) if the issuer had filed an Exchange Act registration statement, but such registration statement had not yet become effective, such issuer could withdraw the registration statement and (c) if the issuer had filed a registration statement that became effective, such issuer would need to continue registration unless otherwise eligible to deregister.

Crowd Funding
The JOBS Act directs the SEC within 270 days to adopt regulations that exclude securities issued pursuant to the newly established “crowd funding” exemption from the new thresholds. Once these regulations are promulgated, issuers of crowd funding securities will need to determine how to track securities, possibly through a separate CUSIP, so that their holders may be properly excluded.

Deregistration Under the Exchange Act
The JOBS Act also lowers the threshold for Exchange Act deregistration for banks and bank holding companies. Previously, in order to deregister under the Exchange Act, an issuer was required to have fewer than 300 shareholders of record. For a bank or bank holding company, this threshold has been increased to fewer than 1,200 shareholders of record. The threshold remains at 300 shareholders of record for other issuers. Taken together, the adjusted thresholds for registration and deregistration allow banks and bank holding companies who met the $10,000,000 asset test and crossed the 300 shareholder threshold before the passage of the JOBS Act and currently have less than 1,200 shareholders to deregister, but does not allow other issuers to take similar action.


Written by:

Foley Hoag LLP

Foley Hoag LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.