Nov 16 2007 by Jason

SEC Announces Rule Change for Private Companies

One company that draws a lot of questions is Google.  Specifically, folks have questions regarding the fact pattern of their initial public offering.  We weren’t investors in the company, so we generally don’t get involved answering these, but today my friends Mike Sullivan and Julia Vax from Howard Rice sent me this nugget: 

“Google’s IPO in 2004 shed some light on a little-known federal securities law – the one that requires that companies with more than 500 securityholders (including holders of stock options) to “go public”. The SEC has long required companies with 500+ securityholders and at least $10 million in assets to publicly file detailed information that is the equivalent of an IPO prospectus. That’s what forced Google to do its IPO – they realized they could no longer shield their confidential financial information as a private company.

On November 15, the SEC announced a rule change to create an exception for stock options – so that companies will be able to have an unlimited number of optionholders without having to register as a public company. Some have speculated that Facebook might soon be facing the same 500+ optionholder issue that Google faced – but now Facebook (and other rapidly growing companies with lots of optionees) will be able to remain a private company without compulsion from SEC rules.”

All in all, the SEC has their head on straight here.  Thanks Mike and Julia for imparting some knowledge.