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Does becoming a public company and taking advantage of public markets sound desirable to you? Before your company takes the step of becoming a public company, management needs to be aware of the SEC reporting obligations associated with public company status.

A company with a class of securities registered under either Section 12 of the Securities Act of 1933, as amended (the “Securities Act”) or which is subject to Section 15(d) of the Securities Act of 1934, as amended (the “Exchange Act”) is required to file certain reports with SEC. If the mantra of a real estate agent is “location, location, location” then the mantra of a public company is “disclosure, disclosure, disclosure.” Federal and state securities regulators have an interest in protecting shareholders and potential investors in public companies and the way they do that is through SEC reporting. If you are a shareholder in or an investor in a public company who is interested in viewing various SEC reports, you may go to the SEC’s EDGAR website.

The general SEC reports that a public company subject to SEC reporting is required to file are Annual Reports on Form 10-K (“10-Ks”), Quarterly Reports on Form 10-Q (“10-Qs”), and Current Reports on Form 8-K (“8-Ks”). There are also additional SEC reports that will be discussed in a future post.

How does a company become subject to SEC reporting?

There are several methods pursuant to which a company can become subject to SEC reporting. The first way to become subject to SEC reporting is through filing a Form 10 (an Exchange Act registration statement) registering a class of securities. Another way to become subject to SEC reporting is filing an S-1 Registration Statement (a Securities Act registration statement) registering the sales or resales of a class of securities. There are differences in SEC reporting obligations that are dependent upon whether a company files an Exchange Act vs. Securities Act registration statement which will be discussed in a future post. Companies who file an Exchange Act registration statement are subject to more extensive SEC reporting than companies who file a Securities Act registration statement. Once a company files an S-1 registration statement, it may become subject to the more extensive SEC reporting by filing a Form 8-A (an Exchange Act registration statement).

An Exchange Act registration statement can be filed either voluntarily or by law if a company’s securities are held by either (1) 2,000 persons or (2) 500 persons who are not “accredited investors” and where the company’s total assets exceed $10 million. Also, although a company may voluntarily become subject to SEC reporting by filing a Securities Act registration statement, the SEC reporting obligation becomes voluntary in any fiscal year at the beginning of which the company has fewer than 300 shareholders.

What additional requirements does a company face once it is subject to SEC reporting?

Companies subject to SEC reporting also have additional requirements independent of SEC reporting such as the following:

  • SEC reporting companies may not loan money to officers and directors;

  • Financial statements filed with SEC reports must be audited by an independent auditor;

  • SEC reporting companies are subject to the Sarbanes-Oxley Act of 2002;

  • SEC reports must be certified by management;

  • SEC reporting companies must keep accurate and complete corporate records; and

  • SEC reporting companies must implement internal controls over financial reporting and evaluate controls and procedures.

Are SEC reports subject to review by the SEC?

Once a company is subject to SEC reporting and files SEC reports with the SEC, all SEC reports are subject to SEC review and comment. The SEC also will review each company subject to SEC reporting once every three years.

Becoming a company subject to SEC reporting and filing SEC reports can be a very complicated process which requires the engagement of services of an expert who specializes in SEC reporting. Business Legal Advisors, LLC has over 7 years of experience representing companies subject to SEC reporting and can assist companies with (1) deciding whether or not to become a company subject to SEC reporting and/or (2) preparing and filing SEC reports in conformity with disclosure requirements. Contact us for a free consultation today.

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