Terminating Reporting Obligations In An Abandoned IPO
A registration statement cannot go effective with a stale financial statement. Financial statements for domestic issuers go stale every 135 days, requiring either a new quarterly review or annual audit and an amended registration statement. Likewise, financial statements for foreign private issuers (FPIs) go stale every nine months. When an issuer is nearing the end date for financial statements, and it appears that closing of an IPO may be imminent, they sometimes choose to go effective and rely on Rule 430A.
The Role Of Rule 430A In IPOs
Rule 430A allows a registration statement to go effective without the final public offering price, underwriting syndicate, underwriting discounts or commissions, amount of proceeds and other items depending upon the offering price, as long as a final prospectus with the omitted items is filed with the SEC no later than 15 business days after the effective date of the registration statement. Once the registration statement is effective, the issuer becomes subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act) under Exchange Act Section 15(d).
Of course, there is a risk that the IPO will not be ready to close within the 15-day time limit, in which case the issuer will not have completed an IPO but will be subject to the Exchange Act reporting requirements. I’ve previously written about terminating Section 15(d) reporting requirements (see the article here).
Addressing Section 15(d) Reporting Requirements
The Section 15(d) reporting requirements are scaled down from the Exchange Act reporting requirements for a company with a class of securities registered under Section 12. In particular, a company that is only subject to Section 15(d) need only comply with the Section 13 reporting obligations and need not comply with the federal proxy rules and third-party tender offer rules in Section 14, the officer/director and 10% shareholder reporting requirements in Section 16 or the 5% or greater shareholder reporting requirements in Sections 13(d), (g) and (f) of the Exchange Act.
The Implications Of Filing Form 8-A/12(b)
Generally, in an IPO the issuer will also file a short form Exchange Act registration statement on Form 8-A/12(b), subjecting the issuer to the full Exchange Act reporting requirements and listing on a national exchange. However, a Form 8-A/12(b) will not go effective until certified by a national exchange and, in any event, is not filed until right before the IPO closing. Accordingly, an 8-A/12(b) would not go effective if the IPO is not proceeding.
Section 15(d) reporting obligations may not be terminated in the same year in which a registration statement has gone effective or before an annual report for such year has been filed with the SEC. However, in 2010, in response to numerous no-action requests, the SEC issued Staff Legal Bulletin No. 18 providing for a methodology for an issuer to immediately suspend reporting obligations where either (i) there has been an abandoned IPO; or (ii) another entity has acquired the issuer.
Key Steps To Terminate Reporting Obligations After An Abandoned IPO
As mentioned, a company becomes subject to Exchange Act Section 15(d) upon effectiveness of a registration statement filed under the Securities Act of 1933 (“Securities Act”). The periodic reporting under Section 15(d) is “to assure a stream of current information about an issuer for the benefit of purchasers in the registered offering and the public aftermarket investors.
Exchange Act Rule 12h-3 provides that the duty to file reports under Section 15(d) is automatically suspended: (i) If the company has a class of securities registered under Section 12 of the Exchange Act and is thus separately subject to the reporting requirements due to that registration; or (ii) on the first day of any fiscal year, other than the fiscal year in which a Securities Act registration statement became effective, in which the company has fewer than 300 record security holders.
In addition, Rule 12h-3 provides that the duty to file reports may be voluntarily suspended, at any time, by the filing of a Form 15 upon meeting certain conditions, to wit: (i) the company is current in its Exchange Act reporting obligations; (ii) the company has either fewer than 300 record security holders (or 1,200 if a bank holding company) or fewer than 500 record security holders and less than $10 million in assets on the last day of each of the company’s three most recent fiscal years; and (iii) the company must not have had a Securities Act registration statement become effective in the fiscal year in which reporting suspension is requested, or if relying on the 500 record holder threshold, during the two preceding fiscal years.
Conditions For Early Form 15 Filing
To suspend reporting obligations, a company must file a Form 15. However, SEC C&DI confirms that a Form 15 is not a condition to the automatic suspension described above.
Through no action relief and later Staff Legal Bulletin No. 18, the SEC has taken the position that a company may file a Form 15 and suspend its Section 15(d) reporting obligations, even though a Securities Act registration statement went effective during the specified time periods in two circumstances. That is:
- Abandoned IPO – a company has an effective registration statement but does not sell any securities pursuant to such registration statement and files an application to withdraw the registration statement pursuant to Securities Act Rule 477, which withdrawal is granted by the SEC; or
- Acquisition—When a company is acquired by another entity, its securities are either extinguished or held solely by the acquirer.
The following conditions must be met for a company to avail itself of this early Form 15 filing: (i) the company may not have a class of securities registered under Section 12 of the Exchange Act (i.e., no Form 8-A may have gone effective); (ii) the company may not exceed the record security holders thresholds in Rule 12h-3; (iii) the company must be current in any Exchange Act reports; (iv) the company must file a Form 15; (iv) the company must deregister any unsold securities in the Securities Act registration statement or withdraw the registration statement if no securities were sold; and (v) the company must not voluntarily report to the SEC.
Stay Compliant And Informed
Ensure your company navigates the complexities of IPO reporting requirements smoothly. Contact ANTHONY, LINDER & CACOMANOLIS, PLLC at 877-541-3263 or use our contact page. Schedule an appointment to discuss how our legal team can guide you through the process of terminating reporting obligations after an abandoned IPO. Reach out today to secure your compliance and strategic advantage.