Schweikert Legislation to Raise the Threshold on the 500 Shareholder RuleJuly 13, 2011 Posted by: Mary Dent
Going public too soon can be a mistake for a startup, but current regulations often force companies to take this action before they are ready. Legislators in Washington are working to change that with the introduction of what's known as The Private Company Flexibility and Growth Act. Under current law, the "500 shareholder rule" requires companies with more than 499 shareholders and $10 million in assets under management to publicly report their financial information to the SEC.
The Private Company Flexibility and Growth Act, introduced in June by Rep. Schweikert (R-AZ) would raise that threshold to 1,000 shareholders and exempt both employees and accredited investors (those with $1 million in assets or $200,000 in annual income) from the 1,000-member threshold.
"My goal is simple – to create another path for capitalizing a business instead of business owners going straight to venture capitalists or saying, let's go public even though we're not ready. If a company is really growing, it could start to hit its 500-shareholder limit just from its employee base."
Rep. Darrell Issa (R-CA), chairman of the Oversight and Government Reform Committee and a co-sponsor of the Schweikert bill, has already called on Securities and Exchange Commission Chairman Mary Schapiro to loosen the rules. In responses to Issa in a letter and in testimony, Schapiro said the SEC is studying whether the current threshold hinders the growth of closely held companies.
We're glad to see legislators working on solutions that meet the needs of startups in the innovation sector and we'll closely monitor this legislation as it moves through the process. SVB values legislative and regulatory changes that give startups the flexibility to meet their unique needs and welcomes the Schweikert bill as an important step in a positive direction. Read More