When most private companies reach 500 shareholders, they trigger an SEC rule which effectively treats them like a public company and requires them to some of the same reporting requirements. Google ran into this issue just before it went public. Now Facebook is quickly reaching that same threshold as it continues to hire and allows employees to sell shares to outside investors.
But in a letter dated October 13, 2008 (embedded below), Facebook’s lawyers argue that rule should not apply to Facebook because most of the shareholders are employees. The SEC granted the exemption.
So Facebook can keep issuing both restricted stock and options to new employees without fear of triggering the (costly) reporting requirements. As long as most of those shares stay inside Facebook, the company should be all right. But if enough employees take advantage of its program allowing them to sell shares to outsiders, and the number of outside investors grows beyond a handful or a few dozen, the SEC might want to revisit this decision.
Facebook Letter to SEC – Get more Legal Forms
I wonder if they would do the same if Facebook weren’t a household name consumer brand.
Is it really ok for the SEC to ignore enforcing a law like this any more than it is for a police station to selectively not enforce laws on its friends or other politically powerful people?
What a piece of complete crap that DOC frame is. How many people here hate frames. Everybody? Yeah. Everybody I guess. Look ugly. Work stupid. Look ugly.
Did I mention they look ugly?
Facebook will announce that it’s going public by middle of next year.
Peter
http://www.thewebwar.com
They won’t bother with an IPO until the market is ready for it. They don’t need the capital at this point. They have positioned themselves to a point where they can hold out with private equity until the market is ripe. An IPO will merely be a formality in the road to battling against the big players which FB is on its way to doing.
On the SEC rule, it’s almost an administrative item that most companies can get around nowadays. The SEC is beginning to realize that a private company exceeding 500 shareholders is not uncommon with new fund structures, the higher number of tech angel investors and micro VC’s. Many of your largest tech VC’s actually invest independently, even if they’re associated with a fund. So, it’s not too surprising, IMHO.
No you’re wrong. It’s not just the number of shareholders. The big difference is who they are. I’m sure it would have been a different outcome if they’d have had 500 VC investors. Reporting becomes much more of an issue in that situation. I’m sure more shares will change hands to outside investors and Facebook will have their hand forced. Once that happens, shareholders will be in for a big disappointment in realizing that FB brings in a lot less revenue than what they were led to believe through rumor and innuendo.
Marc, so who were the shareholders? I think the far majority are VC, even if just individuals, and perhaps some public equity. One thing I agree with is that shareholders will be in for a big disappointment when their hype is leveled by the actual revenue dollars.
Perhaps your not aware they are burning money and need further investment to stay afloat?
With investor + consumer trust collapsing along with the economy, this seems like a horrible SEC decision. Granted many of the stockholders may be employees, but how many Enron and Lehman Bros. holders were employees as well? To shield a company worth billions on paper from disclosing performance and financial health (good or bad) from a large group of shareholders who have deferred compensation for those shares seems irresponsible and completely ignorant of the current economic state.
These guys keep doing things the right way. Amazing!
From my research – it is so easy and convenient to do advertising on FB and so cumbersome on other sites, so guess where I am inclined to put my ads and who I am happy to pay?
Mike
http://realstoriz.com
They get 500! No fair, my Limited gets just 50. The difference between UK and US I guess.
What if Facebook, along with some others, had gone public?????
http://pedatace...dc/blog/view/27
There’s a difference between going public and being a public company. In the eyes of the SEC, when you exceed 500 shareholders, you are a public company. Your reporting is more extensive and detailed. This does not mean you are a publicly trading company. Trading on Nasdaq, NYSE, Dow Jones, or the many trading companies is a whole different aspect.
One other thing to take note of. There are going to be big changes at the SEC. In fact it might become part of a new agency altogether. The direction we’re heading in is definitely more transparency and more regulation. So who knows, their may be stricter disclosure rules going into effect next year.
Well written by chief counsel
Easy to do when everyone knows your name.
that’s just one step closer to NASDAQ!
Markets will turn bullish with all that liquidity – fb will Ipo – the fun about it – all their users might buy shares – easy placement! http://www.xing.com and http://www.spirofrog.de did the same and spread their shares firstly to their users!
If so SEC should make it a rule that employee shareholders are exempted from this rule for every other company, then there will be quite a few companies emerged, if not prior existed, I see no reason why not to hold the rule straight – you can’t play by the rules if the rules can change during the play.
Fuck their stupid rules. What’s the point of these rules? To protect the investor? Fuck it. Like our government knows how to protect investors.
I always wonder why no one has taken up these issues under constitutional law. What right does the SEC have to require that individual investors be accredited under Reg D for private placements. Fuck that. What it basically claims is that only rich people are informed enough to invest in a startup. That’s complete bullshit. It should be declared unconstitutional. Lets put it on the agenda right behind gay marriage.