Rule 12(g) is a crucial rule that affects all issuers, but many issuers don’t start with it in mind. The rule began with the 1934 Exchange Act, and it states the threshold at when an issuer must register securities with the SEC. Read further to learn what rule 12(g) does and why it’s essential.
What is Rule 12(g)?
Section 12(g) of the 1934 Securities Exchange Act was updated alongside the JOBS Act. These amendments, including 12(g)-1 through 12(g)-4 and 12h-3, govern registration and reporting by private companies that have issued equity securities.
These JOBS Act amendments resulted in issuers that are not a bank, bank holding, or savings and loan companies no longer needing to register if they did not exceed certain investor threshold rules. This includes:
- Companies with less than $10 million in assets; and
- when securities are ‘held of record’ by less than 2,000 individuals or 500 non-accredited investors
However, for companies using Regulation A+ and complying with ongoing reporting requirements, issuers under RegA+ don’t count towards the shareholder limits imposed by rule 12(g).
Why is this Important to issuers?
Before the JOBS Act, the private capital market was a different landscape. With Reg A+ and Reg CF, securities have become available to a larger audience of investors than ever without an IPO. With vast improvements to the potential for raising capital, private companies sought a way to circumvent 12(g) to remain unregistered with the SEC, based on the number of investors. JOBS Act exemptions like Reg D don’t fall under this exemption from registration. However, since Reg D primarily attracts larger investors, this is typically of less concern to issuers.
Understanding rule 12(g) and exemption from shareholder thresholds are essential for issuers to avoid registering their securities with the SEC. Especially as RegA+ allows companies to attract increasing numbers of private investors, these limits are not conducive to raising capital in this fashion.