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Traditionally there are three reasons to go public: (1) need capital, (2) founders or VCs need to cash out, or (3) have 500+ stockholders. Reason (3) has driven
by Umalu 16y ago
Traditionally there are three reasons to go public: (1) need capital, (2) founders or VCs need to cash out, or (3) have 500+ stockholders. Reason (3) has driven some otherwise cash rich companies with somewhat patient VC money to go public, and I expect it is what the SEC is looking at here. If pools try to buy, the SEC may look through the pool structure and count each of the pool investors as a separate investor, making it hard to keep under the 500 holder limit. A few non-tech companies that do not need capital have recently gone the "perma-private" route, with private exchanges set up to facilitate trading, but that is difficult to do, especially as more and more employees join up and expect stock and push on the 500 holder limit.
- sgift 16y agoI tried Google but didn't find anything: Is (3) just a rule of thumb, i.e. "more than 500 is unmanageable without going public" or is there a law in the USA which forces companies to go public if they have more than 500 holders? And - why would there be such a law (if it exists)?
- borism 16y agoever heard about Wikipedia? http://en.wikipedia.org/wiki/Public_company http://en.wikipedia.org/wiki/Public_company http://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934 http://en.wikipedia.org/wiki/Securities_Exchange_Act_of_1934 The 500 shareholders does seem to be written in law, however SEC seems to have the authority to make exemptions.
- jonknee 16y agoThe reason it exists is so companies don't end around the SEC and create unregulated stock markets. Once you get 500 shareholders you don't need to offer shares to the public, but you do need to release financials like you have (AKA send them to the SEC).
- Umalu 16y agoThis is correct. Once a company has to go to the trouble of producing quarterly and annual financial reports and filing them with the SEC and making them available to the world, most companies conclude they might as well do a real IPO and get some pop from building a market in their stock.