FINRA Corporate Action Requests

Corporate actions can range from making a change to a company’s name to issuing a dividend or restructuring the company through a merger or bankruptcy.  The corporate action typically aims to influence a company’s stock value and shareholder rights. It also helps in the accomplishment of several objectives, such as raising capital, returning capital to shareholders, restructuring the company, and enhancing liquidity.

Federal securities regulations task the Financial Industry Regulatory Authority (“FINRA”) with processing corporate action announcement requests by companies that trade in the over-the-counter (OTC) marketplace. Corporate actions reportable to FINRA generally include name or trading symbol changes, stock splits, dividends, mergers and acquisitions, and domicile changes.

1. Name or Trading Symbol Changes. A company might make these changes to reflect its business focus or ownership more closely, after an acquisition or rebranding. These changes will appear on customer account statements and in account holdings. These changes may require the company to get a new CUSIP, the unique nine-symbol identifier assigned to most financial instruments.

2. Stock Splits. A stock split changes the number of shares owned by each shareholder, but it does not affect the shareholder’s proportionate equity in the company. For example, in a 3-for-1 stock split, a holder of 100 shares would have 300 shares of the post-split security, but her equity in the company remains the same.

A company may decide to do a stock split to lower the per-share price of its stock; a very high stock price can intimidate investors who fear there is little room for price appreciation. Conversely, a reverse stock split reduces the number of shares outstanding and increases the price per share. A company might do a reverse split to meet minimum listing price requirements for continued trading on an exchange.

3. Dividends. When a company distributes a portion of its earnings to shareholders (in the form of cash or stock), it’s called a dividend. A cash dividend gives you a sum of money for each share owned, and a stock dividend gives you additional shares in the company. For example, a stock dividend of 10 percent means that for every 10 shares you own, you will get one additional share. A company with substantial retained earnings might pay a dividend to pass the benefit on to its shareholders.

4. Mergers and Acquisitions. A merger occurs when two companies agree to become one entity. An acquisition, on the other hand, occurs when one company purchases a majority of another company’s stock, which can be either a friendly or a hostile move. Mergers and acquisitions often involve a strategic decision to limit competition, influence a certain industry, or grow a business.

THE PROCESS

A company trading on the OTC marketplace wishing to effect one of the above types of corporate actions will have to submit notice of the corporate action to FINRA through its Corporate Actions Management Platform. The platform is accessible via https://gateway.finra.org. 

After setting up an account in the gateway, you’ll need to create a new case, which requires submitting basic information about the issuer and its officers/directors and securities, contact information for the person managing the case on behalf of the issuer (which is typically a securities attorney), the type of corporation action(s),  and information about the transfer agent.  FINRA will charge a fee for the submission, which can vary depending on the type of corporate action(s) being submitted and the timing of the action in relation to the submission date. 

After the notice is received by FINRA, FINRA will create a case link in the portal, which can be used by FINRA to request information related to the issuer and the corporate action(s), and the contact person for the issuer can use to upload requested documents and reply to comments made by the FINRA analyst overseeing the case. 

Basic information that will be requested by FINRA includes the following:

Articles of Amendment or Certificate of Change:

• File stamped Articles of Amendment or Certificate of change, citing the requested action. If no amendment is required, please provide specific state law that states the item is not required. 

Articles of Incorporation:

• A file-stamped copy of the original/amended articles of incorporation from the original state of incorporation, which shows the company’s current name.

Board of Directors Resolution:

• A notarized and executed copy of the Board of Directors’ resolution authorizing the requested corporate action. 

Corporate History:

• A cover letter providing a full corporate history for this issuer, including all material facts of the corporate action being requested, starting on the original date of incorporation and including all the corporate changes that have occurred until present day, including, but not limited to, changes of control, reverse mergers, name changes, etc. The following types of transactions must be disclosed in the corporate history: 
  • Share Exchange/Purchase Agreements 
  • Reverse Merger Transactions 
  • Holding Corporation Reorganizations 
  • Dormant Shell Revivals 
  • Changes of Corporate Control: via shareholder vote and/or with consent of prior officers 
  • Reinstatement with the state of incorporation 
  • Custodianships or receiverships 
  • Bankruptcies 
  • Other corporate actions (e.g., name changes, splits, spin-offs, domicile changes, etc.)

CUSIP Confirmation:

• Confirm whether CUSIP Global Services (CGS) will assign a new CUSIP as a result of this corporate action or update the issuer and/or security information for the current CUSIP. 
  • If CGS assigns a new CUSIP, provide a copy of the confirmation provided by CGS. 
  • If the issuer will continue using the current CUSIP, provide a copy of the confirmation provided by CGS that shows the change to the issuer and/or security information has been updated.

Officer Director Documentations:

• Appointment(s) of the officer(s) listed on the Issuer Notification Form 
• Resignation(s) of the officer(s) that served prior to those listed on the Issuer 
• Notification Form Appointment(s) of the director(s) listed on the Issuer 
• Notification Form Resignation(s) of the directors(s) that served prior to those listed on the Issuer Notification Form Appointment(s) of the Board of Directors that signed the executed and notarized Board resolution

These may be submitted in the following formats: 

• • Executed resolutions appointing the current officers and directors, signed by prior and/or current directors. 
  • Executed resignation letters from the prior officers and directors previously made to the SEC, such as an 8-K Custodianship/court appointment filing.

Shareholder Consent:

• A notarized and executed copy of the shareholder’s consent authorizing the requested corporate action.

Shareholder List:

• A copy of the shareholder’s list(s) as of the current date and as of the date of the shareholder vote for the requested corporate action for each class issued and outstanding (i.e., Common Stock, Preferred Stock, etc.). The list(s) should include the following:
  • Legend that details the date of issuance
  • Number of shares issued and outstanding 
  • Percentage of shares issued and outstanding 
  • Type of stock owned (i.e., free trading and/or restricted shares)

Transfer Agent Verification Form:

• Your transfer agent(s) must complete the Transfer Agent Verification Form found at https://www.finra.org/filing-reporting/upc/upc-forms-documents and email the completed form to [email protected].

Other Documents or Information:

FINRA may also request a large amount of other information, ranging from stock purchase agreements, convertible debt notes, information from active litigation involving the issuer, information about past or current acquisitions, information about past domicile changes, past changes of control, past custodianships/reorganizations, etc., and if the issuer isn’t current with its filing obligations, or wasn’t current with its filing obligations at the time it filed a Form 15, FINRA will require the company to cure its delinquencies before processing the corporate action request. 

The process can last anywhere from a few weeks to a few months, and if the issuer is unable to provide all the information requested, the corporate action may be denied.  To avoid delays or undesirable results, it is best to hire an experienced securities attorney to manage the process on behalf of the issuer.

Once FINRA has received all of the requested information it deems necessary to process the corporate action(s), the issuer will be notified to confirm that the information relating to the pending corporate action is accurate.  Upon confirmation, FINRA will announce the corporate action(s) on its Daily List to take effect at the opening of business on the next trading day. The Daily List provides valuable information regarding corporate actions announcements for OTC securities, including ex-dates (the date that determines whether shareholders will receive a dividend), new issues, deleted issues, deletions, trading symbol and name changes. The Daily List also indicates if previously announced changes have been updated or cancelled.

Companies undergoing corporate actions often issue a press release or other communication, such as a tweet or other social media post, to provide details of the change. For instance, a company might announce a new corporate name that reflects a change in product lines or business focus. However, it is important that these publications not suggest that FINRA has somehow “approved” a corporate action or that a corporate action will be effective once FINRA approves it. FINRA does not “approve” corporate actions; it “processes” them.

For more information about FINRA corporate actions requests or to speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected].

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com