Public companies and their in-house counsel should take note of a recent policy statement from the U.S. Securities and Exchange Commission (SEC) related to arbitration clauses. On September 17, 2025, the SEC confirmed that the existence of an issuer–investor mandatory arbitration clause in governing documents will not affect staff decisions to accelerate registration statements. The same approach applies to Exchange Act registrations (e.g., Form 10s), post-effective amendments, and Regulation A qualifications. The focus now is squarely on adequate, clear disclosure of any such provision.
On the surface, this would seem to reduce the likelihood of delays or rejections simply because of the existence of an arbitration clause. This shift by the SEC to focus more on disclosure than deterrence, while positive for many companies, does not provide any shield against potential litigation.
What the policy statement does not do
Before public company executives get too excited over this development, let’s look at what it doesn’t do It does not:
- Bless arbitration clauses on the merits.
- Preempt state corporate law limits. The Commission expressly sidestepped whether companies should adopt such clauses.
- Override courts or state statutes that restrict arbitration in corporate charters/bylaws. For many issuers, state law remains the gating item.
The new primary constraint involves state corporate law, with Delaware front and center.
Delaware is known for the destination of choice in public company registrations. It currently constrains mandatory arbitration in governing documents by requiring that stockholders retain access to at least one Delaware court for specified corporate claims. Recent commentary and firm guidance flag this as a hard constraint post-Policy Statement.
By contrast, Nevada and Texas lack comparable bans, making them potential “competition” states. Of note is Delaware’s 2020 decision in Salzberg v. Sciabacucchi. This approved federal-forum selection, although not arbitration, for Securities Act claims. That’s useful, but distinct from compelled arbitration. Companies should not conflate these doctrines.
Market and policy reactions to watch
It’s worth noting that there is significant investor opposition. For example, CalPERS publicly opposed the SEC’s reversal and urged retention of court access for investors. Expect engagement and voting campaigns if proposals surface.
Many in the media and legal community predict experimentation by some issuers, especially IPO candidates, tempered by state-law barriers and investor sentiment.
Arbitration mechanics now matter more than slogans
Even where state law allows it (or for non-charter contexts like subscription agreements), design details will drive enforceability and optics:
- No rights-stripping. Clauses that shorten limitations periods, eliminate remedies, or otherwise curtail substantive rights invite challenge, even under a pro-arbitration federal framework. Draft conservatively and preserve statutory remedies.
- Class and consolidation waivers. The SEC’s statement leans on Supreme Court arbitration jurisprudence distinguishing forum/procedure from substantive rights, but investor-relations costs can be real. Weigh whether individualized arbitration aligns with your holder base.
- Fee dynamics and administration. The Second Circuit’s 2025 decision in Frazier v. X Corp. limits courts’ ability to step in mid-arbitration to force a party to pay fees. Cost-allocation terms and provider rules therefore deserve careful attention up front.
Disclosure essentials under the SEC’s stance
Given the SEC staff’s “disclosure-first” approach, issuers should ensure prominent, plain-English explanations of:
- Who is bound (issuer only; directors/officers; underwriters; affiliates?) and which claims are covered;
- Where/How disputes proceed (administrator, seat, rules, discovery limits, appeal/review if any);
- The effect on class actions, consolidation, cost-sharing, and the practical implications for investors; and
- State-law dependencies, if any (e.g., Delaware constraints).
Clarity and completeness will drive comment outcomes
There are several practical options for those public companies with arbitration clauses:
- Wait-and-see (Delaware issuers). Track any DGCL changes or test cases and focus on federal-forum selection (already permitted) plus robust risk-factor disclosures.
- Pilot outside governing docs. For offerings where state law permits, consider contract-level arbitration (e.g., subscription agreements), with conservative terms and targeted holder engagement.
- Re-incorporation calculus. Some boards will at least model Nevada/Texas re-domestication to enable arbitration—but should weigh governance optics and other Delaware-specific advantages before moving.
- IR/governance engagement. If exploring arbitration, pre-brief top holders and proxy advisors; prepare Q&A and rationale that emphasize preservation of substantive rights and guardrails against abusive fee/venue terms.
Other obstacles remain for publicly traded companies
Critics warn that reduced class-action leverage could shift more burden to SEC enforcement. The public record and coverage highlight this policy tension; it will be a key talking point for investors and governance advocates as the market experiments.
In short, the SEC’s latest statement clears procedural roadblocks while leaving the real battles to state law, courts, and investors. Public companies that consider arbitration clauses will still need airtight drafting, rigorous disclosure, and a clear-eyed view of how investors and proxy advisors are likely to respond. Delaware’s limits remain the choke point for many, and absent any changes to that state’s approach, issuers should treat arbitration as an experiment with significant legal and reputational risks rather than a safe harbor.
