The SEC's amendments to Exchange Act registration rules, approved on May 3, 2016, implement Title V and Title VI of the JOBS Act and Title LXXXV of the FAST Act. These changes raised the holder thresholds for registering a class of equity securities under Section 12(g) and altered how certain employee-held securities are counted.
What changed
Section 12(g) of the Exchange Act establishes the thresholds at which an issuer must register a class of securities with the SEC. The 2016 amendments updated Exchange Act Rules 12g-1 through 12g-4 and 12h-3 to reflect the new statutory thresholds. They also amended the definition of “held of record” to exclude certain employee compensation plan securities from the determination of whether registration is required.
Specifically, an issuer that is not a bank, bank holding company or savings and loan holding company must register a class of equity securities if the securities are held of record by either 2,000 persons, or 500 persons who are not accredited investors. For banks, bank holding companies and savings and loan holding companies, registration is required if the securities are held of record by 2,000 or more persons. Such a bank or holding company may terminate or suspend registration if the securities are held of record by fewer than 1,200 persons.
Rule 12g-1 exemption thresholds
Rule 12g-1 was amended to provide that an issuer is not required to register a class of equity securities under Section 12(g)(1) if, on the last day of its most recent fiscal year, one of three conditions is met. First, the issuer had total assets not exceeding $10 million. Second, the class of equity securities was held of record by fewer than 2,000 persons or 500 persons who are not accredited investors, determined as of that day rather than at the time of sale. Third, in the case of a bank, savings and loan holding company or bank holding company, the class was held of record by fewer than 2,000 persons.
Rules 12g-2, 12g-3, 12g-4(a) and 12h-3 were each amended to provide a 1,200 holder of record threshold for banks, savings and loan holding companies and bank holding companies, allowing termination or suspension of registration at that level.
Employee compensation plan securities
The JOBS Act directed the SEC to revise the definition of “held of record” to exclude securities held by persons who received them under an employee compensation plan in transactions exempted from Section 5 of the Securities Act of 1933. The SEC also created a safe harbor that issuers can follow when making that determination. This change means those securities do not count toward the holder thresholds for registration.
Hypothetical example
Hypothetical: A non-bank issuer has 1,800 holders of record. Of these, 600 are non-accredited investors. Because the total holder count (1,800) is below 2,000, the issuer does not meet the 2,000-person threshold. However, the number of non-accredited holders (600) exceeds 500, so the issuer would be required to register under the 500 non-accredited investor prong. This example is illustrative and does not represent an actual company.
| Issuer type | Registration threshold | Termination threshold |
|---|---|---|
| Non-bank | 2,000 holders or 500 non-accredited holders | Not specified in claims |
| Bank, bank holding company, savings and loan holding company | 2,000 holders | Fewer than 1,200 holders |
What the source does not say
- Whether the amendments are currently in effect or subject to further regulatory action.
- The specific details of the safe harbor for employee compensation plan securities.
- How the amendments interact with state securities laws or other federal regulations.
- The effective date of the amendments beyond the approval date of May 3, 2016.
- Whether any crypto assets or digital securities are treated differently under these rules.
This article is based on the SEC's published compliance guide. It does not constitute legal advice, and issuers should consult counsel for specific situations.