Section 16 Reporting & Going Public Transactions
Once the SEC staff declares a company’s Form S-1 registration statement effective in a going public transaction, the company becomes subject to Exchange Act reporting requirements even if it does not have its ticker symbol. Many issuers are not aware of the disclosure requirements that apply upon effectiveness of a Form S-1 Registration Statement.
Section 16(a) of the Exchange Act of 1934 (the “Exchange Act”) requires the reporting of beneficial ownership by the officers, directors and stockholders who hold stock directly or indirectly, beneficially owning more than 10% of the company’s common stock or other class of equity securities registered under Section 12(b) or 12(g) of the Exchange Act.Section 16 reporting requirements apply only to companies that have registered a class of securities under Section 12(b) or Section 12(g).Issuers that voluntarily file periodic reports under Section 15(d) of the Exchange Act, and their directors, officers and large stockholders, are not subject to the reporting obligations of Section 16. Nor are issuers that are required to file periodic reports under the Securities Act of 1933 bound by the provisions of Section 16.
For the purposes of Section 16, beneficial ownership means having or sharing, directly or indirectly, either investment or voting power or both. To determine what or how many securities are reported under Section 16, beneficial ownership means having an economic or pecuniary interest, which includes directly or indirectly receiving or sharing in profits from a transaction in the securities, whether by agreement, relationship or other arrangement (See Rule 16(a)-1, Exchange Act). Direct economic interests are defined as ownership of securities in certificate form, or of securities held in a brokerage account bearing the individual’s name. Indirect economic interests that imply beneficial ownership include the following:
♦ A person is generally regarded as beneficially owning securities held in the name of immediate family members sharing the same household. As such, if a spouse or household family member purchases an issuer’s securities, the spouse or other members of the household have an interest in those shares;
♦ An indirect pecuniary interest in securities can cause beneficial ownership to be attributed to multiple persons, such as when persons are acting as a group to acquire, hold, vote or dispose of an issuer’s equity securities.Each person in the group is deemed to be a beneficial owner of all the issuer’s equity securities that are beneficially owned by the other persons within the group; and
♦ The right to acquire equity securities by the exercise or conversion of a derivative including debt security is considered an indirect pecuniary interest in the underlying equity security whether or not the right is presently exercisable.
Section 16 requires the following reports:
♦ SEC Form 3 to report an initial statement of beneficial ownership;
♦ Form 4 to report changes in beneficial ownership; and
♦ Form 5 to report annual statements of beneficial ownership.
A Form 3 for the initial statement of beneficial ownership should be filed after one of the following events:
♦ Upon an issuer listing for the first time on a securities exchange under Section 12(b) of the Exchange Act;
♦ Upon an issuer’s first registration statement under Section 12(g) of the Exchange Act such as Form 10 or Form 8A becomes effective; or
♦ After a person becomes a director, officer or 10% holder of the issuer.
A Form 3 is required by Section 16 even if the insider does not beneficially own any of the issuer’s securities at that time. Newly-appointed directors and officers, and new greater-than-10% shareholders must file Forms 3 within ten days.
Any change in ownership after the filing of the Form 3 must be reported on Form 4. A single Form 4 can be used to report multiple transactions. A Form 4 should be filed for any purchases, sales, gifts, or exercise of options that result in acquisition or disposition of the issuer’s equity securities. With limited exceptions, Forms 4 must be filed within two days.
An annual report on Form 5 is required once annually to report transactions that occurred during the prior fiscal year that either were not required to be reported on a Form 4 or should have been reported on a Form 3 or Form 4 but were not. They must state the filer’s beneficial ownership at the end of the fiscal year. The Form 5, if required, is due within 45 days following the end of the company’s fiscal year.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
Telephone: (561) 416-8956
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