U.S. Public Companies: Calculating Your Public Float – What You Need to Know

by Mintz Levin - Energy & Clean Technology Matters
Contact

If you are a year-end U.S. public company, your second fiscal quarter has recently come to an end, which means that it’s time to calculate your public float to see if your reporting status has changed. Here are a few things to remember.

Public Float Affects Your SEC Compliance Requirements and Can Affect Your Public Offering Plans

The dollar value of your public float determines your filer status which establishes the deadline by which your company must file its annual and quarterly reports with the SEC.

Your public float can also impact your eligibility to register shares on a short-form registration statement, which can make raising capital more difficult. If it has decreased below $75 million, you may be limited in the amount of equity that you can sell in a primary offering on Form S-3. General Instruction I.B.6 to Form S-3 provides that a registrant with a public float of less than $75 million may only sell under a Form S-3, during any 12-month period, securities having an aggregate market value of not more than one-third of the public float of such registrant.

Calculating Your Public Float

Your public float is the aggregate number of your company’s outstanding shares available for trading by public investors, multiplied by the current sale price of the shares. It does not include:

  •  Shares held by executive officers, directors and other stockholders who are deemed affiliates of the company (including all restricted stock and performance shares issued under equity compensation plans)
  • Treasury Shares
  • Derivative Securities (e.g., options, warrants and restricted stock units)

Public Float = sale price of common stock on the applicable date (e.g., last business day of the issuer’s second fiscal quarter (June 30th)) X the number of aggregate worldwide outstanding shares held by non-affiliates of the issuer on that date.

What Are Non-Affiliate Shares?

SEC rules indicate that an affiliate of an issuer is a person that “controls, or is controlled by, or is under common control with, such issuer.” The SEC then goes on to define “control” as “the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise” (emphasis added).

It is important to note that determining affiliate status is a “facts and circumstances” or “case-by-case” determination, and the SEC has indicated many times that it won’t provide guidance on affiliate status. Most issuers have no trouble deeming their executive officers and directors to be affiliates due to their ability to influence the policies and operations of a company. However, whether stockholders that do not otherwise have board representation are affiliates or not can be a troublesome analysis. While a beneficial owner of 10% or more of the voting securities of an issuer is presumed to be a control person/affiliate and most 5% stockholders are required to disclose in a Schedule 13D or 13G filed with the SEC whether their shares are held for the purposes of influencing or changing control, companies should still review their known beneficial owners and consider all factors relating to affiliate status, including but not limited to:

  •  Distribution of voting shares among all stockholders. Consider whether a stockholder has a large percentage of an issuer’s voting stock as compared to all other stockholders of the company. If a company has one 4% stockholder and no other stockholder owns at least 1% of a company’s outstanding shares then that stockholder may be considered an affiliate depending upon other factors present. Conversely, if a company has four institutional stockholders that each own more than 5% of the company’s stock and those stockholders are not affiliated with each other, it is likely that none of those stockholders will be considered affiliates. Companies should also look to see whether more than one stockholder is deemed under the SEC’s beneficial ownership rules to own the same securities as another stockholder as this too may impact the analysis.
  •  Impact of possible resale. Under certain circumstances, a communication to an issuer’s management by a “significant” stockholder that such stockholder plans to resell his or her shares into the market – with the implicit message that such resales will likely cause a drop in the market price of the issuer’s shares – may provide that stockholder with the power to influence the direction and policies of that issuer.
  •  Relationship between the stockholder and management. A stockholder might be viewed as a controlling person because of the stockholder’s close personal or business relationship with the management of the issuer. Thus, an inquiry into this type of relationship becomes important in attempting to determine whether the stockholder should be deemed an affiliate.
  • Influence as stockholder. A stockholder might have influence over the outcome of a stockholder vote. For example, a person might be considered an affiliate because, in part, he or she might have the ability by virtue of the influence he or she has over other stockholders, whether implicit or explicit, to (a) prevent the formation of a quorum for a shareholders meeting or (b) block the taking of an action by the issuer.
  •  Voting agreements. It is important to know whether any person, directly or indirectly, possesses the right to vote shares by means of a trust, proxy, power of attorney, pooling agreement or any other contract or arrangement. If such an arrangement exists it is important to determine the extent of that power in terms of percentage of voting rights and duration.Exchange Act reporting companies fall into one of three filer status categories, which are determined based on public float: (1) large accelerated filers, (2) accelerated filers and (3) all other filers, including non-accelerated filers and smaller reporting companies.

Filing Status: Compliance Requirements

Exchange Act reporting companies fall into one of three filer status categories, which are determined based on public float: (1) large accelerated filers, (2) accelerated filers and (3) all other filers, including non-accelerated filers and smaller reporting companies.

 Filing Deadlines
Filer Status Public Float Reporting History Annual Report (Form 10-K) Quarterly Report (Form 10-Q) Annual Report (Form 20-F)
Large Accelerated Filer $700 million or more Has been an Exchange Act reporting company for at least 12 calendar months; and filed at least one annual report 60 days 40 days 4 months
Accelerated Filer $75 million or more, but less than $700 million Has been an Exchange Act reporting company for at least 12 calendar months; and filed at least one annual report 75 days 40 days 4 months
All Other Filers (including Non-Accelerated Filers and Smaller Reporting Companies) Less than $75 million N/A 90 days 45 days 4 months

Although a company’s status does not change until the end of the fiscal year, the Form 10-K for the current fiscal year, because it is filed in the next year, will be the first filing impacted by the change in status. Therefore in order to prepare for the coming year it is best to make the calculation soon after the second quarter deadline. In addition, if you plan to register shares and raise capital in a public offering, your public float could have immediate consequences.

What Happens When Your Filer Status Changes?

In addition to the change in timing of the due dates of SEC reports, rules related to disclosure also change, and the timing of such changes does not neatly tie into the above rule.

[View source.]

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.

© Mintz Levin - Energy & Clean Technology Matters | Attorney Advertising

Written by:

Mintz Levin - Energy & Clean Technology Matters
Contact
more
less

Mintz Levin - Energy & Clean Technology Matters 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):
hide

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.

Security

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 info@jdsupra.com. 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: info@jdsupra.com.

- 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.