Tip of the Week: Reporting or Not?

It is surprisingly common for a shell company (or other public acquisition vehicle) to have the wrong impression about whether or not it is obligated to file periodic reports with the SEC under the Securities Exchange Act of 1934. This is something that should never be taken for granted and checked carefully in each transaction.

Without getting too technical, the most common error is a company that had an obligation to file reports for a period of time (such as right after a public offering) but never made that obligation permanent. It might have a stock trading on the OTCBB, which requires a company to be required to report in order to be trading. This could lead observers to assume that it is so obligated to report. Unfortunately, FINRA, in its oversight of its own rules, has not monitored whether a company has transitioned from mandatory to voluntary reporting, so long as they actually continue to file reports. Only if you stop filing does the OTCBB de-list the securities and send it down to the Pink Sheets.

There are times when a shell or acquisition vehicle claims it is non-reporting. Some see advantages to a combination with a non-reporting shell as it eliminates some costly and time-consuming SEC filings (and the avoidance of the need to complete an audit), but still retains a trading stock and the possibility to become reporting again in the future when the company is ready. If a company was reporting in the past and now claims it is non-reporting, again check carefully. It may have filed Form 15 with the SEC which requests a suspension of the company’s filing obligations (it does not technically de-register the class of stock that had the obligation). But be sure to confirm that all conditions to the Form 15 being applicable have been followed, since sometimes the SEC does not look at Form 15 filings to see if they comply. For example, if a company is delinquent in filings before filing the Form 15, you do not eliminate the need to make those filings just by filing the Form 15. In addition, the company cannot use Form 15 if it has too many shareholders, so this also has to be confirmed.

Here’s another to check. A company that is required to report but has not made filings in, say, a year or two, may think it is still obligated to report and do its catch-up filings. We are engaged at times to help shell companies get current in that manner. A couple of quick tips if that is the case: 1) there is a process with the SEC to request one giant catch-up filing instead of filing every missing report. How? Email me and I’ll tell you. 2) Double check that the SEC has not already brought an enforcement action to de-register the company’s securities. They may have sent a notice to an old address and the company may not even be aware. 3) If you are very delinquent and have time, there are various ways to work with the SEC to effectively end the obligation to make the delinquent filings. How? Ask me.

If combining with a Form 10 shell, if the Form 10 went effective it is definitely a reporting company unless a Form 15 was filed or the SEC took some action to de-register. So the analysis is pretty easy in that context.

Those of us of a certain age remember the great TV show, “The Odd Couple,” in which a famous episode tells what happens when we assume…

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