The Public Company Handbook is a practical guide for directors and executives of public companies.

A public company is a corporation, limited liability company or partnership subject to the regulations and disclosure requirements of the Securities Exchange Act of 1934 (1934 Act). Usually, this applies to entities that have completed an initial public offering (IPO) registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933 (1933 Act).

1934 Act Registration

The 1934 Act requires companies with a widely traded class of equity securities to register those securities with the SEC. Registration under the 1934 Act is a one-time registration of an entire class of securities. By contrast, registration under the 1933 Act, such as an IPO, registers a certain number of securities for a particular public distribution. Two events trigger 1934 Act registration: listing on a national securities exchange or meeting certain size thresholds.

Listing on an Exchange

To list any securities for trading on a national securities exchange, a company must register the class of securities with the SEC under Section 12(b) of the 1934 Act. The company will also have to file a listing application and other materials with the exchange.

Meeting Size Thresholds

Alternatively, a company may trigger 1934 Act registration requirements simply by reaching a certain size. A company with total assets in excess of $10 million and a class of equity securities held of record by 2,000 or more persons – or 500 or more persons who are not accredited investors – must register the class of securities under Section 12(g) of the 1934 Act. A shareholder qualifies as an accredited investor by meeting criteria specified in rules under the 1933 Act, which generally involve individuals with high levels of income or net worth or entities with significant total assets. Securities issued pursuant to employee compensation plans are excluded from the definition of securities held of record for purposes of calculating the Section 12(g) threshold. This exemption generally covers stock options and other equity awards, as well as shares issued under these awards, held by employees and former employees of the company. A company must register within 120 days after the last day of the fiscal year in which it meets both the shareholder and total asset size thresholds.

Concurrent Registration Under the 1933 and 1934 Acts

Typically, a company will register its securities under the 1934 Act simultaneously with its IPO. This allows the company to list the securities offered in the IPO on a national securities exchange. Form 8-A makes 1934 Act registration relatively simple for a company concurrently registering an IPO. Form 8-A is a shortened registration statement that requires disclosure of general characteristics of the company’s securities, including dividend rights, voting rights and any antitakeover provisions in the company’s certificate or articles of incorporation and bylaws. This information is typically incorporated by reference from the company’s IPO registration statement.

Breaking News: The Rise of SPACs: An Alternative Path to Becoming a Public Company

Among other things, 2020 will be remembered as a year that saw a boom in the use of special purpose acquisition companies (SPACs) as a robust alternative to a traditional IPO. A SPAC is a company formed to raise capital in an IPO, with the offering proceeds serving as a blind pool of funds held in trust to finance the acquisition of one or several unidentified targets. As SPAC IPOs surged in 2020 and 2021, many companies and investors evaluated and undertook transactions with SPACs – referred to as “de-SPAC” transactions – as an alternative to traditional IPOs or merger and acquisition liquidity events. A de-SPAC transaction consists of a merger between a private operating company and a publicly traded SPAC, with the shareholders of the private company receiving shares of the SPAC and/or cash as consideration. The SPAC is already a public company, having completed an IPO and a simultaneous 1934 Act registration to list its shares on a national securities exchange. As a result of the de-SPAC transaction, the private company becomes a public company, with a shareholder base comprising the rollover private company shareholders, the SPAC sponsor, the SPAC’s public investors, and any private investors that participate in the deal through private investment in public equity.

1934 Act Periodic Reporting Requirements

A company with securities registered under Section 12(b) (exchange listing) or 12(g) (companies of a certain size) of the 1934 Act must file periodic reports with the SEC. As we describe in this Handbook, a public company files annual, quarterly and current reports with the SEC.

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Additional 1934 Act Regulation

In addition to periodic reporting, 1934 Act registrants and their directors, executive officers and significant shareholders are subject to the following requirements:

  • The proxy rules;
  • The tender offer rules;
  • Section 16 reporting obligations and short-swing profit liability;
  • Beneficial ownership reporting on Schedules 13D and 13G; and
  • The listing standards of The Nasdaq Stock Market (Nasdaq), the New York Stock Exchange (NYSE) or other exchanges or listing services.

Trap for the Unwary: 1933 Act Registration Alone Triggers 1934 Act Periodic Reporting

A company that has issued equity or debt securities to the public in an offering registered under the 1933 Act must file annual, quarterly and current reports with the SEC under Section 15(d) of the 1934 Act. This reporting requirement applies even though the company does not list the securities on a national securities exchange or market and the company has not crossed the size thresholds triggering 1934 Act registration. Companies subject to periodic reporting only by reason of Section 15(d) are free from a host of other 1934 Act requirements, including regulation of proxy solicitations and third-party tender offers, beneficial ownership reporting and short-swing profit liability.

 

Practical Tip: Consider the Evolving View of Corporate Purpose and Responsibility as You Navigate Public Company Life

In recent years, an array of public company stakeholders have pushed corporations to reevaluate their traditional focus on maximizing monetary returns for shareholders in favor of a more holistic approach that considers the interests of all stakeholders. Rising consumer, employee and government scrutiny and engagement have encouraged companies to change their business practices and policies. Consumers expect ethical and eco-friendly behavior; employees seek equitable pay, good working conditions and a diverse and inclusive workforce; and governments incentivize companies that invest in the communities where they operate.

In addition, a growing number of shareholders consider social and environmental factors in their investment strategies. In fact, U.S. assets held by institutional investors and money managers applying sustainable investing criteria accounted for $12 trillion in 2018 – about 25% of all professionally managed U.S. assets. Socially conscious investors look to environmental, social and governance (ESG) factors in making investment decisions, with some of the largest institutional investors leading the way. For example, massive worldwide fund manager BlackRock has developed a focus on sustainable investment offerings and plans to exit investments with high environmental risks. Investor attitudes toward ESG issues are also reflected by trends in shareholder activism. A large number of public company shareholder resolutions – a tool used by shareholders to drive change – concern political spending, climate change, pay equity, diversity, human rights and other ESG matters.

This evolving and more expansive view of the role and responsibility of corporations in society is an important backdrop against which your company will engage in public company life, crafting required and mandatory SEC disclosure and reporting obligations, guiding directors and senior management through the proxy statement and annual meeting processes, and striving to comply with the myriad corporate governance and fiduciary requirements of securities exchanges and state corporate laws. Through all this, your company will need to understand and address ESG and other matters at the forefront in the minds of stakeholders to ensure continued support, investment and opportunities for growth in the future.

Navigate The Public Company Handbook

You’re a Public Company? What Does It Mean?

Corporate Governance: Best Practices in the Boardroom

Investor and Other Stakeholder Engagement

Nuts & Bolts: The Basics of Public Company Periodic Reporting Obligations

Finding Your Voice: Disclosure Practices for Non-GAAP Financial Measures and Regulations FD and M-A

Insider Reporting Obligations and Insider Trading Restrictions; Rule 10b5-1 Trading Plans

Proxy Statements and Proxy Solicitation

Annual Meeting of Shareholders

NYSE Listing Standards: Governance on the "Big Board"

Nasdaq Listing Standards: To Market, to Market

Corporate Structural Defenses to Takeovers

Follow-On Offerings and Shelf Registrations

Securities and Corporate Governance Litigation

Tiring of the Public Eye? Delisting, Deregistration and Going Private

Foreign Private Issuers
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Related News & Insight

Lawyer Publications

2016
The Public Company Handbook: A Corporate Governance and Disclosure Guide for Directors and Executives - Fifth Edition