SEC Staff Grants Generally Applicable Relief from Exchange Act Registration for Restricted Stock Units | Practical Law

SEC Staff Grants Generally Applicable Relief from Exchange Act Registration for Restricted Stock Units | Practical Law

The SEC's Division of Corporation Finance issued a generally applicable no-action letter granting relief from Exchange Act registration for non-reporting companies issuing restricted stock units to employees if certain terms and conditions are satisfied.

SEC Staff Grants Generally Applicable Relief from Exchange Act Registration for Restricted Stock Units

by PLC Corporate & Securities
Published on 14 Feb 2012 • USA (National/Federal)
The SEC's Division of Corporation Finance issued a generally applicable no-action letter granting relief from Exchange Act registration for non-reporting companies issuing restricted stock units to employees if certain terms and conditions are satisfied.
On February 13, 2012, the SEC's Division of Corporation Finance issued a generally applicable no-action letter to a law firm indicating that it will not object if certain companies do not register restricted stock units (RSUs) issued to employees, directors and some consultants under Section 12(g) of the Exchange Act under certain conditions.
To qualify for the no-action relief:
  • The company must be a non-reporting issuer.
  • The RSUs must be granted according to a written compensatory equity incentive plan in the manner and subject to other terms and conditions described in the no-action letter, including:
    • when and how the RSUs will be settled;
    • the company's agreement to provide certain information to the RSU holder; and
    • specific restrictions on transfer by the initial RSU recipient and subsequent transferees.
Section 12(g) of the Exchange Act requires a company to register a class of equity securities if it has total assets exceeding $10 million and that class of equity securities is held by 500 or more persons. Exchange Act registration can be very burdensome and costly for companies that do not otherwise intend to become public companies. Previously a company that issued RSUs to 500 or more employees would have to register the RSUs under the Exchange Act or seek no-action relief from registration from the SEC staff.
This no-action letter will permit non-reporting companies to offer RSUs to their employees under the same conditions as described in the no-action letter without:
  • Being forced to go public before they would intend to do so.
  • Needing to request individual SEC no-action relief.
For more information on Exchange Act registration, see Practice Note, Exchange Act Registration: Overview.