The section of the Securities Exchange Act of 1934
that requires a company to register its stock under the 1934 Act if it has total assets exceeding $10 million and
a class of equity security held of record by 2,000 or more persons. Companies use Form 10
, which requires audited financial statements, among other disclosures. This is different than the usual SEC registration statement
, filed under the Securities Act of 1933, that companies make when they go public
by traditional means with a standard IPO. The 1934 Act rule can require some companies to make public disclosures earlier than they had intended.
The Jumpstart Our Business Startups (JOBS) Act increased the registration threshold from 499 to 2,000 holders of record, as long as no more than 499 of those 2,000 holders do not qualify as "accredited investors" under SEC rules. The new rule excludes from this calculation people who obtained stock under the company's equity compensation plans (previously, companies had to apply for an SEC exemption on this) and investors who purchased securities under the crowdfunding exemption in the JOBS Act. For additional details and the impact of the new rule on small companies, see a memo from the law firm Cooley.