Securities Law, NYSE, NASDAQ & OTC Markets Listings & Compliance

Navigating Corporate Governance: Requirements for Nasdaq and NYSE Companies

Going public is a thrilling milestone for any company, but it comes with a hefty dose of responsibility. If you’re eyeing a listing on the New York Stock Exchange (NYSE) or Nasdaq Stock Market (Nasdaq), you’ll need to align your board and operations with robust corporate governance standards. These rules, enforced by the exchanges and the Securities and Exchange Commission (SEC), aim to promote accountability, fairness, and investor confidence. In this post, we’ll break down the key requirements, from board setup to committee roles, while highlighting some nuances and recent developments. Think of this as your roadmap to building a compliant—and effective—governance structure.

Building a Strong Board: Size, Independence, and Sessions

Neither the NYSE nor Nasdaq mandates a specific minimum number of directors on your board, giving companies flexibility based on their size and needs. However, independence is non-negotiable for most firms. Unless you’re a controlled company (more on that later), both exchanges require that a majority of your board members qualify as independent. This ensures decisions aren’t swayed by insiders.

To foster open discussions, independent directors must hold regular private meetings—known as executive sessions—without management present. Nasdaq specifies at least twice a year, while NYSE encourages them as needed. These sessions help directors address sensitive issues like executive performance or potential conflicts.

Pro Tip: Start assessing director independence early in your IPO prep. It’s not just about ticking boxes; a diverse, skilled board can drive better strategic outcomes.

The Core Committees: Audit, Compensation, and Nominating/Governance

Public companies on either exchange must establish three key committees to handle oversight: audit, compensation, and nominating/corporate governance. Each needs a written charter outlining their duties, which helps maintain transparency and consistency.

Audit Committee: The Financial Watchdogs

This committee is crucial for ensuring accurate financial reporting. Both exchanges, in line with SEC rules, require at least three independent members who meet heightened independence criteria—no extra pay from the company beyond board fees, and no affiliate status (generally meaning less than 10% ownership without other ties).

Members should quickly become financially literate, with at least one expert in accounting or finance. NYSE calls for “accounting or related financial management expertise,” while Nasdaq looks for “financial sophistication.” Companies must also disclose if they have an “audit committee financial expert” per SEC definitions.

Key responsibilities include hiring and supervising external auditors, reviewing financial statements, approving services, and managing internal controls. They also oversee whistleblower programs for reporting accounting irregularities.

Compensation Committee: Aligning Pay with Performance

Focused on executive pay, this group designs policies linking compensation to company results, including salaries, bonuses, and equity incentives. They review disclosures for the annual proxy statement and administer stock plans.

Like the audit committee, members are typically independent outsiders. The board must evaluate factors like other income sources or affiliations that could compromise their judgment on pay matters.

Nominating and Corporate Governance Committee: Shaping the Future Board

This committee scouts for qualified director candidates, recommends nominees for shareholder votes, and sets governance policies. They also evaluate board and management performance.

NYSE requires a fully independent committee, though duties can be shared with other independent groups. Nasdaq allows flexibility: either a dedicated committee or approval by a majority of independent directors.

Adding Value: In practice, strong committees not only meet regulatory demands but also enhance risk management and stakeholder trust. For instance, many companies now integrate ESG (environmental, social, governance) considerations into their charters for broader oversight.

What Makes a Director “Independent”?

Independence isn’t subjective—both exchanges have detailed criteria to avoid conflicts. A director generally can’t be independent if they’ve had recent ties to the company, such as:

• Employment by the company or its auditors in the last three years.
• Receiving over $120,000 in direct compensation (excluding board fees) in any 12-month period over the past three years.
• Family members in executive roles or similar compensation scenarios.
• Interlocks where company execs serve on another entity’s compensation committee that employs the director.
• Significant business dealings between the director’s affiliates and the company.

The board must actively affirm independence, considering any other relationships that might impair judgment. It’s a holistic review, not just a checklist.

For audit and compensation committees, standards are stricter. Audit members can’t accept any non-board compensation, and compensation members face extra scrutiny on affiliations that could influence pay decisions.

Grace Periods for Newly Public Companies

Don’t worry if your board isn’t fully compliant on day one of listing—both exchanges offer phase-in schedules for IPOs:

These timelines start from your listing date. Nasdaq recently updated its rules in 2024 to better align with NYSE and SEC standards, clarifying phase-ins and cure periods for compliance lapses.

Limited exceptions exist, like allowing one non-independent director on a committee for up to two years if it’s in the company’s best interest (with disclosure), but audit members must always meet SEC independence.

Exemptions for Special Situations

Not every company fits the standard mold, so exemptions apply:

• Controlled Companies: If over 50% of voting power is held by one individual, group, or entity post-IPO, you can skip the majority independent board and independent compensation/nominating committees. Many still opt in for better optics. If control shifts, phase-in rules kick in from the change date.
• Foreign Private Issuers: These can follow home-country practices instead of exchange rules (except for SEC audit requirements). Status is tested annually; if lost, full compliance starts the next fiscal year.

Nasdaq also offers limited exemptions for all listed firms, regardless of IPO status.

Recent Updates and Trends

Corporate governance evolves, and 2024-2025 brought some notable shifts. Nasdaq repealed its board diversity disclosure rules in February 2025, following regulatory changes and a post-election push to streamline requirements. This means companies no longer need to report board diversity stats or explain shortfalls, though voluntary disclosures remain common for investor appeal.

Additionally, both exchanges introduced rules limiting reverse stock splits to prevent abuse in maintaining listing status. Nasdaq also tweaked liquidity criteria for initial listings and emphasized insider trading policies in disclosures.

For the latest, always consult the NYSE’s annual guidance memo or Nasdaq’s Listing Center—these resources provide FAQs and summaries to navigate nuances.

Final Thoughts: Governance as a Strategic Asset

Complying with NYSE and Nasdaq rules isn’t just about avoiding penalties; it’s about fostering a culture of integrity that attracts investors and talent. As you prepare for your IPO, engage legal experts early to tailor your structure. Remember, good governance pays dividends—literally and figuratively—in long-term success.

If you have questions about NYSE and Nasdaq company independence and corporate governance matters or to speak with a Securities Attorney, Hamilton & Associates Law Group, P.A. is ready to help. Our Founder, Brenda Hamilton, is a nationally known and recognized securities attorney with over two decades of experience assisting issuers worldwide with going public on the Nasdaq, NYSE, and OTC Markets. Since 1998, Ms. Hamilton has been a leading voice in corporate and securities law, representing both domestic and international clients across diverse industries and jurisdictions. Whether you are taking your company public, raising capital, navigating regulatory challenges, or entering new markets, Brenda Hamilton and her team deliver the experience, strategic insight, and results-driven representation you need to succeed.

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 info@securitieslawyer101.com.

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