Agoracom Blog

SEC Proposals To Help Smaller Public Companies

Posted by AGORACOM at 10:21 PM on Wednesday, July 25th, 2007

Good evening to you all.  While I was away on vacation in early July, the SEC released several new proposals relating to the easing of disclosure and reporting requirements for smaller public companies.  This is good news for both investors and principals of small-cap companies, though there are a couple of items that may make life a little more difficult when it comes to raising money (see comments below).

The proposals would allow companies with a public float of less than $75 million to qualify for the smaller company requirements, up from $25 million for most companies today.

The complete proposal is 180 pages long and, therefore, primarily suited for review by CEO’s and/or their legal counsel.  Investors are better off reading excellent summaries and overviews of the proposals, such as this one posted by accomplished attorney David Feldman.

We applaud the SEC for recognizing the fact that small-cap companies need relief in these areas in order to spend less time on paper work and more time on getting business done.  If you are a principals of a small-cap company, you need to take the time to read these in detail and submit comments to the SEC, which are due no later than September 17, 2007.

In the meantime, I’d like to take the time to summarize the 5 proposals but David Feldman does such a good job that I’m going to simply borrow his:

1. Smaller Reporting Company Regulatory Relief and Simplification – this is the elimination of Regulation S-B and migration of all issuers to the original Regulation S-K disclosure system and forms while maintaining scaled disclosure for smaller public companies

2. Exemption of Compensatory Employee Stock Options from Registration under Section 12(g) of the Securities Exchange Act of 1934 – this allows a private company to issue many hundreds of options to employees without accidentally crossing the line requiring them to become a reporting company.

3. Electronic Filing and Simplification of Form D – they are proposing to streamline Form D in Regulation D transactions and to permit its filing electronically.

4. Revisions to Rule 144 and Rule 145 to Shorten Holding Period for Affiliates and Non-Affiliates- this is the big one which shortens the Rule 144 holding period in most cases to six months. The proposal includes significant relief from the Worm/Wulff restrictions on holders of shell shares, suggesting that they can use Rule 144 no later than six months after a reverse merger.

5. Revisions to the Eligibility Requirements for Primary Securities Offerings on Forms S-3 and F-3 – also big, this permits any reporting company to do a “shelf registration” of shares to be issued in the future, but only a primary offering of up to 20% of the company’s float in any 12-month period.

The SEC has gone through the trouble of researching and submitting these proposals.  We now have an obligation to review them and provide the SEC with the following:

  1. Provide comments and suggestions on how to improve on these proposals
  2. Provide your appreciation for proposals aimed at making you more successful

If you need a head start, Feldman Weinstein & Smith have already sumbitted the following comment letters:

Comment Letter #1 and Comment Letter #2 

That is all for now.  We all have a lot of reading to do, so look for more commentary later.


2 Responses to “SEC Proposals To Help Smaller Public Companies”

  1. AGORACOM says:

    Thank-you, David. Your timely analysis of these important proposals is of great value to everyone in the industry that doesn’t have the time or expertise to review them.

    Keep up the great work.


  2. George – thanks for the kind words and for helping get the word out!
    All the best,