April 17, 2012
In connection with the increase enacted by Section 501 of JOBS Act in the threshold for registration of private companies under Section 12(g)(1)(A) of the '34 Act from 500 stockholders of record to 2,000 (or the alternative limit of 500 unaccredited investor stockholders of record), it would contribute to the ability of private companies to properly monitor and self-administer compliance with this requirement if the Commission would clarify certain concepts relating to the method for counting holders of record.
Specifically, I propose that the Commission consider allowing individual stockholders who hold shares in certain common vehicles used for estate and financial planning to be counted as a single holder of record. To accomplish this, I propose three simple rules:
(1) An individual stockholder and his/her spouse should be counted as one holder of record
(2) an individual stockholder and his/her self-directed IRA(s) and spouse's IRA(s) should be counted as one holder of record and
(3) an individual stockholder and his/her revocable, self-trusteed estate-planning trust and spouse's self-trusteed revocable trust should be counted as one as one holder of record.
These proposals are consistent with existing principles of securities regulation, such as Regulation D, and are based on the premise that the need for registration and public financial reporting reflected in exceeding a threshold number does not increase because individual stockholders engage in estate planning and personal financial planning by holding shares in one or more of the foregoing ways. The same individual, or a husband and wife, is making the investment decision to purchase, hold or sell the securities.
I am the general counsel of an employee-owned diversified financial services company that has for over 25 years used the opportunity for stock ownership to build employee loyalty and to offer employees the opportunity to build equity in their estates. These objectives are entirely consistent with the purposes of Section 501 of the JOBS Act, and the requested rules would eliminate needless constraints on the personal planning of our employee-stockholders.
Moreover, these simple clarifications can readily be made within the 90-day rulemaking window without the delays that the Commission has indicated will be necessary to deal with more complex issues of beneficial ownership in the context of shares owned through funds and other investment entities, nominee holders, or the like.