Release No. 33-6652

Release No. 34-23406

Release No. 39-2022

July 8, 1986

Reporting by Small Issuers

ACTION: Final rules.

SUMMARY: The Commission announces the adoption of revisions to Rules 12g-1, 12g-4 and 12h-3 under the Securities Exchange Act of 1934 (the "Exchange Act") ¹ which would increase the number of issuers outside the scope of the registration and reporting requirements of the Exchange Act by adjusting the total assets threshold from $3 million to $5 million. These revisions represent a part of the continuing effort by the Commission to reduce the burdens to the smallest issuers of complying with such registration and reporting provisions to the greatest extent possible consistent with the protection of investors. Conforming changes also are being made to Form 15 and to certain of the Commissions definitions of a small entity for purposes of the Regulatory Flexibility Act. ²

EFFECTIVE DATE: August 15, 1986.

FOR FURTHER INFORMATION CONTACT: Richard K. Wulff or Karen OBrien, (202) 272-2644, Office of Small Business Policy, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: On September 30, 1985, the Commission published for comment several proposed amendments to its rules to increase the number of issuers classified as exempt from the registration and reporting provisions of the Exchange Act by changing the total asset threshold from $3 million to $5 million. ³ The proposals were a continuation of the Commissions efforts to reduce the costs to small issuers of complying with the registration and reporting provisions under the Exchange Act. ⁴ Having considered the comments received from the public, the Commission is adopting the revisions substantially as proposed.

Table of Contents

I. Present Requirements and the Revisions

Section 12(g) provides that an issuer which has 500 or more record holders of a class of equity securities and total assets of $1 million must register its securities under the Exchange Act. ⁵ Rule 12g-1 exempts from that registration requirement any issuer whose total assets do not exceed $3 million. Rules 12g-4 and 12h-3 allow for termination of registration of a class of securities under Section 12(g) and suspension of the duty to file reports under Section 15(d) ⁶ when such class of securities is held of record by less than 300 persons or by less than 500 persons where the total assets of the issuer have not exceeded $3 million on the last day of each of the issuers three most recent fiscal years. ⁷

Under todays revisions to Rule 12g-1, an issuer is not required to register under Section 12(g) of the Exchange Act until it has 500 or more record holders of a class of equity securities and total assets of $5 million or more. ⁸ The revisions to Rules 12g-4 and 12h-3 allow for the termination of registration of a class of securities under Section 12(g) of the Exchange Act and suspension of the duty to file reports under Section 15(d) of the Exchange Act when such class of securities is held of record by less than 300 persons or by less than 500 persons where the total assets of the issuer have not exceeded $5 million on the last day of each of the issuers three most recent fiscal years. ⁹

In addition, the description of Form 15 is amended to indicate that the total assets criterion is $5 million and the definition of a small entity for purposes of the Regulatory Flexibility Act is conformed to the total assets criterion of $5 million in Rules 12g-1, 12g-4 and 12h-3. ¹⁰

II. Public Comments Regarding the Proposals

The Commission received six comment letters regarding the proposals, five of which supported the concept of classifying small issuers and exempting certain of them from Exchange Act reporting and other obligations. ¹¹ Some commentators also offered general views on the concept of classification and proposed additional classification criteria. The Commission is today publishing an advance notice of proposed rulemaking seeking comments from the public with respect to these and other suggested criteria for governing entry into and exit from the Exchange Act disclosure system. ¹²

The one opposing commentator viewed the proposals as harmful to the investing public because approximately 430 current issuers would no longer be subject to the Exchange Act disclosure system and in his view, the securities markets would be unable to price these issuers securities in an accurate manner. ¹³ The Commission does not agree with the position that there would not be sufficient information for trading markets or for these markets to accurately price issuers securities. Issuers whose securities are quoted in the NASDAQ inter-dealer quotation system still have to register these securities pursuant to Section 12(g) of the Exchange Act. Issuers whose securities would trade in the ordinary over-the-counter market would have to publicly provide certain information because of the Commissions Rule 15c2-11. ¹⁴ Moreover, exemption from the reporting provisions does not relieve these companies from the application of the anti-fraud provisions of the federal securities law.

III. Availability of Final Regulatory Flexibility Analysis

A final Regulatory Flexibility Analysis in accordance with the Regulatory Flexibility Act regarding the amendments has been prepared. A summary of the corresponding Initial Regulatory Flexibility Analysis was included in the proposing release. Members of the public who wish to obtain a copy of the Final Regulatory Flexibility Analysis should contact Richard K. Wulff or Karen OBrien as specified above.

IV. Certain Findings

As required by Section 23(a) of the Exchange Act, the Commission has specifically considered the impact that these rulemaking actions would have on competition and has concluded that they would not impose a significant burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act.

V. Statutory Basis and Text of the Amendments

The amendments to the Commissions rules and forms are being adopted by the Commission pursuant to Section 19 of the Securities Act; Sections 12, 13, 15 and 23(a) of the Exchange Act; and Section 319 of the Trust Indenture Act of 1939.

List of Subjects in 17 CFR Parts 230, 240, 249 and 260

Reporting and recordkeeping requirements, securities.

TEXT OF AMENDMENTS

Accordingly, Parts 230, 240 and 260 of Chapter II of Title 17 of the Code of Federal Regulations is hereby amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

1. The authority citation for Part 230 continues to read, in part, as follows:

Authority: Sec. 230.100 to 230.174 issued under section 19, 48 Stat. 85, as amended: 15 U.S.C. 77s

* * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

Part 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

2. The authority citation for Parts 240 and 249 continues to read as follows:

Authority: Sec. 23, 48 Stat. 901, as amended: 15 U.S.C. 78w.

3. 17 CFR Parts 230, 240, and 249 are amended by removing the reference to "$3,000,000" and replacing it with "$5,000,000" in the following sections:

(a) 17 CFR 230.157(a)

(b) 17 CFR 240.0-10(a)

(c) 17 CFR 240.12g-1

(d) 17 CFR 240.12g-4(a)(1) and 240.12g-4(a)(2)

(e) 17 CFR 240.12h-3(b)(1) and 240.12h-3(b)(2)

(f) 17 CFR 249.323(a)

PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 1939

4. The authority citation for Part 260 continues to read, in part, as follows:

Authority: Sec. 319, 53 Stat. 1149, as amended: 15 U.S.C. 77aaa * * *

§260.0-7 Amended

5. By amending §260.0-7 by removing the reference to "$3 million" and replacing it with "$5 million."

By the Commission.

Jonathan G. Katz

Secretary 

¹ 15 U.S.C. 78a et seq.

² 5 U.S.C. 604 et seq.

³ Release Nos. 33-6605; 34-22483; 39-1038 (September 30, 1985) 50 FR 41162.

⁴ These efforts are complementary to those required by the Small Business Investment Incentive Act of 1980, Pub. L. No. 96-477 (October 21, 1980), to remove unnecessary and burdensome regulatory restraints on the capital raising efforts of the small business community consistent with the purposes of investor protection. That statute principally amended the Securities Act of 1933 (the "Securities Act"), the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940 and the Securities Investor Protection Act of 1970.

⁵ If an issuer has a class of securities registered under Section 12 of the Exchange Act, the issuer and, where applicable, specified persons are required to comply with the periodic reporting provisions of Section 13, the proxy and tender offer requirements of Section 14, and the short swing profit provisions of Section 16 of the Exchange Act.

⁶ Section 15(d) of the Exchange Act requires every issuer which has had a registration statement declared effective under the Securities Act, 15 U.S.C. 77a et seq. to comply with the periodic reporting requirements of Section 13 of the Exchange Act.

⁷ Release No. 34-20263 (October 5, 1983) 48 FR 48245 and Release No. 34-20784 (March 22, 1984) 49 FR 12688. The suspension provided by Rule 12h-3 from Section 15(d) of the Exchange Act does not apply to an issuer with respect to any fiscal year in which the registration statement became effective or is required to be updated pursuant to Section 10(a)(3) of the Securities Act.

⁸ The proposed modification to Rule 12g-1 would retain the standard with respect to foreign private issuers which provides that if a foreign private issuer has securities quoted in an automated interdealer quotation system it would remain subject to registration under Section 12(g) of the Exchange Act.

⁹ In the case of foreign issuers the criteria for security holders is based on the number of security holders resident in the United States.

¹⁰ It should be noted that the actions taken today raising the asset threshold requirements will affect the transfer agent registration requirement in Section 17A(c)(1) of the Exchange Act. Issuers are reminded that registration under Section 12 of the Exchange Act continues to be a prerequisite for including their securities on the NASDAQ system, and that only transfer agents registered pursuant to Section 17A(c)(1) may perform transfer agent functions for such securities.

¹¹ The comment letters and a Summary of Contents (File No. S7-43-85) are available for public inspection and copying at the Commissions Public Reference Room, 450 5th Street, N.W., Washington, D.C. 20549.

¹² Release No. 34-23407 (July 8, 1986) 51 FR.

¹³ The Commission estimated that of the 700 companies which could be relieved of the Exchange Act reporting obligations, approximately 270 would continue to voluntarily report to maintain their NASDAQ listing.

¹⁴ Rule 15c2-11, 17 CFR 240.15c2-11.