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Securities Law: Additional Offerings, Disclosure and the Securities Exchange Act of 1934

Going Private Reporting Requirements for Public Companies

A company goes private by reducing the number of its stockholders to less than 300. The company thereby no longer is required to file public company reports with the Securities and Exchange Commission. Public companies that go private must inform their stockholders pursuant to Securities and Exchange Commission regulations about the reasons for going private.

  • Purchase of the company’s stock by another company or a person through a tender offer
  • Merger with another company in which the other company or a consolidated company is the survivor
  • Sale of the company’s assets to another company
  • Declaration of a reverse stock split that provides cash for stockholders with smaller holdings so that the total number of remaining shareholders is less than 300

If the transaction by which a company goes private is a tender offer, the company or person making the tender offer will have to file tender offer documents with the Securities and Exchange Commission that in turn will make the documents public. The documents also will be made available to affected shareholders. If the transaction is conducted by an insider (or “affiliate”) of the company going private, the insider will have to file Schedule 13E-3 with the Commission pursuant to Rule 13e-3 issued by the Commission pursuant to the Securities Exchange Act of 1934.

Schedule 13E-3 requires information concerning the purposes of the transaction taking a company private. The Schedule also requires information on what alternatives to the transaction were considered and on factors indicating fairness of the transaction for all shareholders of the company. Indications of dissension among the board of directors of the company going private, such as negative votes or abstentions, must be disclosed.

Beyond requiring disclosure of information, the Securities and Exchange Commission does not bar a company from going private. However, there may be remedies under state laws for minority or dissenting shareholders allowing them to challenge the transaction or to receive fair compensation.