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Requirement to Register Securities Under 1934 Act

40. When must a company register with the Securities Exchange Commission pursuant to the ’34 Act?

A company issuing securities must either register or perfect and exemption from registration. There are, however, other situations that subject a company to SEC public reporting requirements. The company becomes known as a “reporting company”. A company is generally required to register with the SEC if it meets any of the following characteristics:

•    it completes a public offering pursuant to the ’33 Act;

•    securities of the company are traded on a national exchange (such as the NYSE or CME); or

•    it has 2,000 or more total shareholders (or 500 or more unaccredited shareholders) of unrestricted securities and a total asset value of more than $10 million.

The 2,000 (or 500 unaccredited) shareholder rule does not apply to shareholders who acquired shares through sanctioned crowdfunding or pursuant to employee compensation plans. Notably, if an issuer later drops below the shareholder limitation numbers, it may apply to the SEC to be exempted from the ’34 Act reporting requirements.

•    Discussion: Why do you think the SEC requires a company to register in the above-referenced scenarios? Do you think the size of the company (number of shareholders or value of assets) should determine whether reporting is required? Why or why not?

•    Practice Question: ABC Corp is a private company that has been steadily growing over the past several years. They have gone through several private offerings and have a large number of accredited and unaccredited investors. They also have substantial land holdings as well as equipment. Under what conditions might ABC Corp be forced to registered with the SEC and become a reporting company?

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