Governance & Compliance Insider

Effective October 1, 2025, the Securities and Exchange Commission (SEC) is lowering the fee rate for public companies and other issuers who register their securities. The new fee will drop from $153.10 to $138.10 per million dollars registered. This change applies to registrations under Section 6(b) of the Securities Act of 1933, as well as the repurchase of securities under Section 13(e) and certain proxy solicitations or tender offers under Section 14(g) of the Securities Exchange Act of 1934. Federal securities laws require the SEC to review and adjust these registration fees each year, based on projected collections needed to meet statutory targets. This annual process uses economic methodologies developed with the Congressional Budget Office and the Office of Management and Budget. The SEC will continue to issue updates to keep the public informed about any new fee-related developments. Please contact our team if you need assistance with SEC registration and compliance.

As discussed in more detail in our eUpdate published today, the SEC on January 24, 2024 adopted final rules amending the disclosure and registration requirements applicable to special purpose acquisition companies (SPACs) and shell companies that register or file reports with the SEC. These amendments impose significant new requirements on SPAC IPOs, as well as de-SPAC and similar transactions for SEC reporting shell companies. As part of the final rule package, the SEC also amended its guidance for all SEC reporting companies on how to make economic projections in SEC filings , as well as issuing guidance on when a SPAC may be considered an investment company.

On October 10, 2023, the Securities and Exchange Commission approved amendments to the Regulation 13D-G reporting regime for persons who beneficially own more than 5% of a class of securities (“5% Owners”) that is registered under Section 12 of the Securities and Exchange Act of 1934, as amended.  The amendments accelerate the deadlines by which 5% Owners must file initial reports and amendments on Schedule 13D or 13G, mandate the use of machine-readable language in those reports, and provide for additional amendments and guidance.  For more information, see our eUpdate.

NYSE, NYSE American and Nasdaq have postponed the effective date of the proposed clawback listing standards, so they would take effect on October 2, 2023, and issuers would be required to adopt compliant clawback policies by December 1, 2023.  Furthermore, the SEC has granted accelerated approval of each exchange’s proposal, as amended. The amendments have not changed the substantive requirements for a clawback policy.  However, besides the postponed effective date, NYSE has updated its listing standards so that the notice and cure period for noncompliance applies to circumstances beyond the delinquent adoption of a clawback policy, such as prompt recoupment of erroneously awarded compensation.  NYSE’s amendment is consistent with Nasdaq’s listing standards. Since clawback policies must cover all incentive-based compensation received on or after the October 2, 2023 effective date of the listing standards, earlier adopters may wish to specify this effective date in their policies. For FAQs on the SEC-prescribed clawback policy, please see the following Dorsey eUpdate.

On December 14, 2022, the SEC adopted final rules amending Rule 10b5-1, the safe harbor that allows directors, executive officers and others, including issuers, to engage in securities transactions while in possession of material non-public information, by entering into a binding contract, instruction or plan adopted prior to effecting the transaction and at a time when the seller was not in possession of material non-public information about the issuer  (a “Rule 10b5-1 plan”).  The new rules include a number of measures intended to limit certain potentially abusive strategies permitted under the old rules and certain new disclosure requirements intended to enhance investors’ understanding of the use of Rule 10b5-1 by insiders as well as other related disclosures. The amendments will require many public companies, as well as their directors, officers and shareholders, to take concrete steps to amend their existing Rule 10b5-1 plans and disclosure practices prior to the effective date.  The final rules will become effective 60 days following publication of the adopting release in the Federal Register, except as noted below. A summary of the final rules is set forth below, and readers can find the adopting release here. Key takeaways from the Rule 10b5-1 amendments include: Existing 10b5-1 plans may continue to be relied upon after the effective date of the new rules (even if they are not compliant under the new rules) until they expire, are terminated or, if earlier, any modification or change is made to the amount, price or timing of the purchase or sale of securities under the plan. For insiders, employees and other non-issuers, new or amended 10b5-1 plans after the effective date will be subject to new “cooling off periods” during which no transactions can occur under the plan. This may require insiders and others to refrain from engaging in transactions for a period of time after any required updates are made. For issuers, internal policies and procedures will need to be updated to ensure that its and its insiders’ plans satisfy the new rules, and that the necessary information is collected to permit the issuer to satisfy the new disclosure requirements. Issuers should also reevaluate their written insider trading policies prior to the required publication of those policies under the new rules. Issuers that maintain equity compensation programs that rely on Rule 10b5-1 plans for open market purchases will need to consider the effect of the new rules on the structure of those compensation programs, as well as the potential impact of the new rules on the ability of insiders that participate in such programs to rely on Rule 10b5-1 for other transactions. Finally, the new rules require additional detailed disclosure around the grant of option awards to certain insiders. Issuers should plan to update the committee or Board responsible for such grants to ensure that the new rules are addressed in grants made after the effective date. Rule 10b5-1 Amendments The final rules amend Rule 10b5-1 to provide that, among other things: All persons, other than the issuer, must observe a new “cooling off period” between the time that a Rule 10b5-1 plan is adopted and the date of any transaction made in reliance upon the plan. The required cooling off period for directors or officers (as defined in Rule 16a-1(f)) will be the later of (1) 90 days following plan adoption, or (2) two business days following the disclosure of the issuer’s financial results for the fiscal quarter in which the plan was adopted or modified (but not to exceed 120 days following plan adoption or modification).  Persons who are not directors or officers will be subject to a shorter 30-day cooling off period. Any modification or change to the amount, price or timing of the purchase or sale of securities under a Rule 10b5-1 plan, including any other change that has any of these effects, will be deemed to be a termination of the plan and the adoption of a new plan. Consequently, a new cooling off period must be observed following the adoption of the new plan and that new plan must meet the requirements of Rule 10b5-1 at the time of adoption. No person, other than the issuer, may have more than one Rule 10b5-1 plan in effect at any one time, except for (1) a Rule 10b5-1 plan that is limited to the sale of that number of securities necessary to satisfy tax withholding obligations arising exclusively from the vesting of a compensatory award, and the insider does not otherwise exercise control over the timing of such sales (a “qualified sell-to-cover plan”); (2) separate contracts with multiple brokers that taken together, work as a single plan and satisfy all of the applicable requirements; or (3) a “replacement” plan that complies with the applicable cooling off period and under which no transactions will occur until the previous plan expires. Rule 10b5-1 plans that are designed to be satisfied in a single open market transaction cannot be used by a non-issuer more than once in a 12-month period, except for qualified sell-to-cover plans. Rule 10b5-1 plans must be operated in good faith, without any alteration or deviation from the plan, and without entering into or altering a corresponding or hedging transaction or position in the securities. While the new rules do not limit the ability of a person to terminate a Rule 10b5-1 plan, any subsequent non-Rule 10b5-1 transactions will need to be carefully considered to avoid an unfavorable inference. For directors and officers, the plan must include a certification that, on the date of adoption of the plan, the individual director or officer is not aware of any material nonpublic information about the security or issuer, and the director or officer is adopting the plan in good faith and not as part of a plan or scheme to evade the rules. The disclosure of material non-public information known to the insider at the time of adoption but disclosed prior to any trades will not be sufficient to permit reliance upon Rule 10b5-1 (though it may protect against liability in the event of a subsequent claim). The amendments to Rule 10b5-1 will be effective 60 days after publication in the Federal Register, subject to the grandfathering provisions discussed above. Section 16 Amendments The rules relating to Section 16 reporting were amended to provide that: Form 4s and Form 5s must identify those transactions intended to qualify for the Rule 10b5-1 safe harbor. Bona fide gifts of equity securities that are subject to Section 16 reporting must be reported on a Form 4 within two business days after the gift, rather than on Form 5 within 45 days after the end of the calendar year. The amendments to Forms 4 and 5 will be effective for beneficial ownership reports filed on or after April 1, 2023. New Disclosures in Quarterly and Annual Reports and Proxy Statements New disclosures must be provided in quarterly and annual reports and proxy statements, as follows: Quarterly, an issuer’s Form 10-Q and Form 10-K must include disclosures regarding the existence and material terms (other than price) of any Rule 10b5-1 plan or similar plan of a director or officer. A Form 10-K or Section 14A proxy statement must include the following new disclosures:the issuer’s policies and practices on the timing of awards of options in relation to the disclosure of material nonpublic information by the issuer, including how the board determines when to grant awards, whether the board or compensation committee takes material nonpublic information into account when determining the timing and terms of awards and whether the issuer has timed the disclosure of material nonpublic information for the purpose of affecting the value of executive compensation; a table discussing any options granted to named executive officers in the period beginning four business days prior to the filing of a Form 10-Q or 10-K, or the filing or furnishing of a Form 8-K that discloses any other material nonpublic information, and ending one business day after the filing (provided that smaller reporting companies and emerging growth companies may limit the table to a different group of officers); whether the issuer has adopted insider trading policies and procedures for directors, officers and employees, or the issuer itself, and if not, why it has not done so; and filing as an exhibit to the Form 10-K a copy of any such insider trading policies and procedures. A foreign private issuer filing an annual report on Form 20-F is required to disclose whether it has adopted insider trading policies and procedures for directors, senior management and employees, and if not, why it has not done so, and to file as an exhibit a copy of any such insider trading policies and procedures. The foregoing disclosures must generally be tagged in inline XBRL. Issuers will be required to comply with the amendments to Forms 10-Q, 10-K and 20-F and Section 14A beginning with the first filing that covers the first full fiscal period that begins on or after April 1, 2023 (October 1, 2023 for smaller reporting companies).  So, for an issuer with a December 31 fiscal year end that is not a smaller reporting company, the amendments to Form 10-Q will take effect for the quarter ended June 30, 2023 and the amendments to Form 10-K and 20-F will take effect for the annual filing for fiscal year ended December 31, 2024.

On June 3, 2022, the Securities and Exchange Commission mandated the electronic filing or submission of certain documents that reporting companies currently may provide as paper filings, by adopting amendments to Regulation S-T. Electronic Submission of “Glossy” Annual Reports “Glossy” annual reports, which are prepared in accordance with Rule 14a-3 of the Securities Exchange Act of 1934 and delivered to shareholders with proxy materials, must be submitted electronically, likely starting with the 2023 proxy season.  The SEC’s EDGAR filing system will serve as a repository for electronic copies of the “glossy” annual reports to shareholders, whether or not companies decide to post the reports on their corporate websites. According to the adopting release, electronic submissions of the “glossy” annual reports should capture the graphics, styles of presentation, and prominence of disclosures (including text size, placement, color, and offset, as applicable) contained in the reports.  The reports should not be re-formatted, re-sized, or otherwise re-designed for purposes of the submission on EDGAR. Currently, the only format that EDGAR supports is PDF, but if EDGAR is upgraded to accommodate other formats appropriate for electronic filing of the “glossy” annual report, the SEC will communicate the upgrade by adopting an updated EDGAR Filer Manual that supports such formats. Reporting companies will no longer need to deliver paper copies of annual reports to the SEC, but those companies using notice & access to deliver proxy materials will still need to make their proxy materials, including their annual reports, publicly accessible free of charge on a website specified in the notice. We will present reminders of this and other developments during our December presentation Preparing for the 2023 SEC Reporting Season. Other Mandatory Electronic Filings or Submissions The adopting release also mandates: the electronic filing of Form 144, which provides notice of an affiliate’s proposed reliance on the Rule 144 exemption for public resales of restricted or control securities; the filing is triggered when the amount to be sold under Rule 144 by the affiliate during any three-month period exceeds 5,000 shares or units or has an aggregate sales price in excess of $50,000 the electronic filing or submission of certain other documents that are currently permitted as paper filings, including:notices of exempt solicitations exempt preliminary roll-up communications annual reports for employee benefit plans on Form 11-K all filings on Form 6-K, which are used by certain foreign private issuers to provide information between annual reports certain foreign language documents (in PDF) certifications that a security has been approved by an exchange for listing and registration the use of Inline eXtensible Business Reporting Language (“Inline XBRL”) for the filing of the financial statements and accompanying notes to the financial statements required by Form 11-K Compliance Deadlines For most of these amendments, we expect that compliance will be required in early 2023, six months from the amendments’ effective date.  Electronic submissions of Form 144 will be required later, six months from the date of publication in the Federal Register of the SEC release that adopts the version of the EDGAR Filer Manual addressing updates to Form 144.  Inline XBRL reporting for Form 11-Ks will be required three years from the effective date of the amendments.

As expected, the SEC has adopted final rules requiring the use of universal proxy cards in shareholder meetings involving non-exempt contested director elections held after August 31, 2022. In addition, certain amendments will impact proxy disclosure for all director elections, contested or uncontested. Amended Proxy Disclosure for All Director Elections The rules establish new proxy disclosure requirements for all director elections, including uncontested elections. The proxy card must include an “against” voting option when applicable state law gives effect to a vote “against” a nominee. Shareholders must have the ability to “abstain” in an election where a majority voting standard is in effect. Amended Item 21 of Schedule 14A requires disclosure regarding the effect of a “withhold” vote in an election. Amended Rule 14a-5 requires companies to disclose the deadline for dissident shareholders to provide notice of a solicitation of proxies in support of director nominees other than management nominees pursuant to Rule 14a-19 for the next annual meeting. Generally, the notice must be postmarked or transmitted electronically no later than 60 calendar days prior to the anniversary of the previous year’s annual meeting date. Effective Date The universal proxy rules will apply to all shareholder meetings involving non-exempt contested director elections held after August 31, 2022. The other rule amendments will be applicable to all shareholder meetings involving director elections held after August 31, 2022. Additional information is available here.

On August 6, 2021, the Securities Exchange Commission (the “SEC”) approved Nasdaq Rules 5605(f) and 5606 on board diversity, which are the first of their kind to be implemented on a national scale in the United States. They are controversial, opposed by SEC Commissioners Hester Peirce and Elad Roisman, and may face legal challenges. While there has been no indication that the NYSE will follow, the SEC’s rulemaking agenda indicates that the Commission may propose new rules regarding board and director nominee diversity disclosures as soon as October 2021. Board Diversity Matrix Rule 5606 will require each Nasdaq-listed company subject to certain exceptions, to publicly disclose in an aggregated form, to the extent permitted by applicable law, information on the voluntary self-identified gender, racial characteristics, and LGBTQ+ status of the company’s board of directors. The requirements are intended to make consistent and comparable statistics widely available to investors regarding the number of diverse directors serving on a Nasdaq-listed company’s board. Companies must present this information in Nasdaq’s board diversity matrix or a substantially similar searchable format by the later of: (i) August 8, 2022 or (ii) the date the company files its proxy statement or its information statement for its annual meeting of shareholders (or, if the company does not file a proxy or information statement, the date it files its Form 10-K or 20-F) during 2022. The matrix must indicate the total number of directors and (1) the number of directors based on gender identity (female, male, or non-binary) and the number of directors who did not disclose gender; (2) the number of directors based on race and ethnicity (African American or Black, Alaskan Native or Native American, Asian, Hispanic or Latinx, Native Hawaiian or Pacific Islander, White, or Two or More Races or Ethnicities), disaggregated by gender identity (or did not disclose gender); (3) the number of directors who self-identify as LGBTQ+; and (4) the number of directors who did not disclose a demographic background under item (2) or (3) above. After the first year of disclosure, companies must disclose the matrix for the current year and immediately prior year. The required disclosure can be presented on a company’s website or in its proxy statement, information statement, Form 10-K, or 20-F. If a company decides to include the disclosure on its website, it must publish it concurrently with the applicable SEC filing. It must also submit a URL link to the disclosure through the Nasdaq Listing Center within one business day after posting. A company that does not comply with proposed Rule 5606 would have 45 calendar days to submit a plan of compliance to Nasdaq and upon review of such plan, Nasdaq staff may provide the company with up to 180 days to regain compliance or face a delisting determination, which may be appealed to a hearings panel. “Comply or Explain” Approach to Board Diversity In addition to the board diversity matrix, pursuant to Rule 5605(f), Nasdaq adopted a “comply or explain” approach to board composition that requires each Nasdaq-listed company, subject to certain exceptions, to have at least two “diverse” board members, including: (i) at least one director who self-identifies as female; and (ii) at least one director who self-identifies as an “underrepresented minority” or part of the LGBTQ+ community. If a company does not have such diverse directors by the deadlines described under “Transition Periods” below, it must: (i) specify the applicable requirements of Rule 5605(f)(2); and (ii) explain the reasons why it does not have them, which could include a description of a different approach to diversity. For example, in the commentary, Nasdaq explains that companies do not need to agree with the definition of “underrepresented minority,” and they may consider diversity more broadly, for example, to include persons of Middle Eastern, Central Asian or North African descent. Veterans are another example of a category not currently covered under Nasdaq’s definition of “diversity.” The company’s explanation for not reaching the diversity requirement must be disclosed at the same time and in the same location as its board diversity matrix. While Nasdaq will verify that the company has provided an explanation, it will not assess the explanation on its merits. For purposes of this Rule, “underrepresented minority” is defined to mean an individual who self-identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities, which are categories consistent with categories reported to the Equal Employment Opportunity Commission through the Employer Information Report EEO-1 Form. If a director self-identifies in the “Two or More Races or Ethnicities” category, the director must also self-identify in each individual category, as appropriate. “LGBTQ+” is defined to mean an individual who self-identifies as any of the following: lesbian, gay, bisexual, transgender, or as a member of the queer community. Modified Requirements and Exemptions for Certain Companies There are modified requirements for companies with smaller boards, smaller reporting companies, foreign issuers and newly listed companies. Companies with smaller boards of five or fewer directors can meet the requirements by having at least one diverse director, who can be either a female, an underrepresented minority or a member of the LGBTQ+ community. The diverse director can also be appointed as the sixth director on the board without triggering additional diversity requirements. Smaller reporting companies (as defined in Rule 12b-2) can meet the requirements by having at least two female directors, or one female director and a second director who is an underrepresented minority or a member of the LGBTQ+ community. Foreign issuers can meet the requirements by having at least two female directors, or one female director and one director who is either (i) an underrepresented individual (based on national, racial, ethnic, indigenous, cultural, religious or linguistic identity in the country of the company’s principal executive offices), or (ii) a member of the LGBTQ+ community. Foreign issuers include a “foreign private issuer” or a “foreign issuer” (Rule 3b-4(b)) that has its principal executive offices located outside of the United States. There are various phase-in periods for newly listed companies under Rule 5605(f), depending on the Nasdaq market. For example, special purpose acquisition companies (“SPACs”) listed under IM-5101-2 of the Nasdaq Regulatory Authority are not required to provide disclosure information or to have the minimum number of diverse directors until their business combination. However, following the business combination, such companies must meet, or explain why they do not meet, the applicable diversity requirements by the later of (i) two years from the date of listing or (ii) the date the company files its proxy statement or its information statement (or 10-K or 20-F) for the company’s second annual meeting of shareholders subsequent to the company’s listing. Certain types of companies are exempt under Rule 5605(f)(4), because they do not have boards, do not list equity securities, list only securities with no voting rights towards the election of directors, or are not operating companies, and holders of the securities they issue do not expect to have a say in the composition of their boards. Transition Periods Nasdaq-listed companies will have a transition period to comply with these rules, based on their listing tier: All Nasdaq-listed companies, including companies with smaller boards, should have at least one diverse director by the later of August 7, 2023 or the date the company files its proxy or information statement (or Form 10-K or 20-F) for the company’s annual shareholder meeting in 2023. Nasdaq Global Select Market and Nasdaq Global Market companies should have at least two diverse directors by the later of August 6, 2025 or the date the company files its proxy or information statement (or Form 10-K or 20-F) for the company’s annual shareholder meeting in 2025. Nasdaq Capital Market companies should have at least two diverse directors by the later of August 6, 2026 or the date the company files its proxy or information statement (or Form 10-K or 20-F) for the company’s annual shareholder meeting in 2026. If a company fails to comply with Rule 5605(f), Nasdaq will notify the company of a deadline to cure the deficiency and regain its compliance, which if not met, will result in a delisting determination subject to appeal before a hearings panel. Nasdaq has established that the deadline to cure is the later of (i) the company’s next annual meeting or (ii) 180 days from the event that caused the deficiency. Listed companies that no longer meet diversity requirements due to a board vacancy will have a one-year grace period to resume compliance, but they must disclose this reliance on the grace period in their proxy statement or on their website. Board Recruiting Service The SEC also approved a proposal to offer eligible listed companies access to a one-year complimentary board recruiting service, which would provide access to a network of diverse candidates. In order to be eligible, a listed company must represent to Nasdaq that it does not have (i) at least one director who self-identifies as female; and it does not have (ii) at least one director who self-identifies as an underrepresented minority or LGBTQ+. Foreign issuers and smaller reporting companies have separate eligibility criteria consistent with their diversity requirements. A company that is not eligible may still receive complimentary 90-day access. What To Do Now Nasdaq will host several live webinars to help companies understand key elements of these listing rules and how to gain access to a variety of free board recruiting services. Webinars will also be available for replay. The first webinar is scheduled for August 17, 2021 at noon eastern. In preparation for the 2022 proxy season, companies are encouraged to provide their directors with an opportunity to self-identify diversity characteristics for the matrix, either as part of a D&O questionnaire or a separate survey. To the extent that the board does not currently meet Nasdaq’s diversity criteria, they may decide to review director succession plans, or otherwise be prepared to explain the decision not to undertake such a review. Where the board uses a definition of “diversity” that is different from the Nasdaq definition, it should be prepared to explain why the definition is appropriate for the company and how board composition measures up to that definition. While the Nasdaq rules do not mandate board diversity, and Nasdaq will not assess the validity of any explanations provided, companies should be sensitive to how their investors will interpret the disclosure. It is also important to monitor existing or developing legislation on board diversity, as states including California, Colorado, Illinois, Maryland, New York, Pennsylvania, and Washington have enacted such legislation.

In response to commonly asked questions, the SEC staff has released three FAQs related to amendments to the business description, legal proceedings and risk factor disclosure requirements in Regulation S-K Items 101, 103, and 105, discussed here.  The rulemaking became effective on November 9, 2020. Compliance for Form S-3 Registration Statements and Prospectus Supplements The first FAQ clarifies that for registration statements on Form S-3 that became effective before November 9, 2020, Form 10-Ks incorporated by reference into the registration statements do not need to be amended to comply with the new requirements for business descriptions and legal proceedings in Items 101 and 103.  Furthermore, even though Form S-3 expressly requires risk factor disclosure pursuant to Item 105, related prospectus supplements filed on or after November 9, 2020 do not need to comply with the amendments until the next update to the related registration statement on Form S-3 for Section 10(a)(3) purposes.  In other words, issuers are not required to amend the risk factor disclosure set forth in their last 10-K until they file their next 10-K, at which time the risk factor disclosure included in the new 10-K will automatically supersede the previous risk factor disclosure. Presumably, a registration statement on Form S-3 that becomes effective after November 9, 2020 will need to comply with the updated risk factor requirements, either by incorporating by reference an earlier Exchange Act filing that complies with such updated requirements or by restating the risk factors in the body of the registration statement.  However, the staff has not specifically addressed this scenario. Business Development - Period to be Covered in Form 10-K Under amended Item 101(a), issuers are to provide a description of the general development of their businesses for the period over which information would be material. However, Item 1 of Form 10-K indicates that this description only needs to cover developments since the beginning of the fiscal year for which the report is filed. The second FAQ confirms that that Form 10-Ks only need to cover developments since the beginning of the fiscal year. However, in light of the principles-based approach underlying the Regulation S-K amendments, we would advise companies to take a broader view of the time period covered by amended Item 101(a) if appropriate to provide for a full discussion of the general development of the business in all material respects. Business Development – Incorporation by Reference of Full Discussion The SEC staff clarifies that for filings other than an initial registration statement, an issuer may omit the full discussion of the general development of its business if the issuer (1) provides an update to the general development of its business, disclosing all material developments that have occurred since the most recent registration statement or report that includes the full discussion; (2) includes one active hyperlink to the registration statement or report that includes the full discussion; and (3) incorporates the full discussion by reference to the registration statement or report. The SEC clarifies that an issuer is not required to use this updating method, though the staff anticipates that the updating method will apply mainly to registration statements. The rulemaking notes that a filing that includes an update and incorporates by reference the more complete business development discussion could not be incorporated by reference into a subsequent filing, such as a Form S-3 or Form S-4.  This prohibition may limit the amendment’s usefulness for registration statements.  Rule 12b-23 of the Securities Exchange Act and Rule 411 of the Securities Act provide that information must not be incorporated by reference in any case where such incorporation would render the disclosure incomplete, unclear, or confusing, such as incorporating by reference from a second document if that second document incorporates information pertinent to such disclosure by reference to a third document.

On October 7, 2020, the Securities and Exchange Commission (”SEC”) proposed a new limited, conditional exemption from broker-dealer registration requirements of Section 15(a) of the Securities and Exchange Act of 1934, as amended (“Exchange Act”) for “finders” who assist issuers with raising capital in private markets from accredited investors. The proposed exemption would permit natural persons to engage in certain defined and limited activities involving accredited investors without registering with the SEC as brokers. The proposed exemption seeks to assist small businesses to raise capital and to provide regulatory clarity to investors, issuers, and the finders who assist them. There will be a 30-day comment period for the proposed exemption following publication in the Federal Register. The SEC published a series of 45 questions at the end of the proposal seeking feedback. For additional information, see this eUpdate.

Corporate secretaries of public companies will soon be updating their D&O questionnaires for the 2021 proxy season, and they should consider whether to include a question that allows directors to self-identify as diverse.  While companies may be hesitant to raise the issue, increasingly, they are being asked for diversity data on their boards and employees.   In recent news: The California governor has signed into law AB 979, mandating that the boards of public companies incorporated or headquartered in the state initially include at least one “director from an underrepresented community” by the end of 2021, meaning a director who self-identifies as “Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual or transgender.”  There are already legal challenges pending based on state constitutional grounds. The New York City Comptroller announced that in response to its campaign, nearly half of S&P 100 companies will now publicly disclose their Consolidated EEO-1 Reports. These Reports give a comprehensive breakdown of a company’s U.S. workforce by race, ethnicity and gender according to 10 employment categories, including senior management, defined to incorporate individuals within two reporting levels of the CEO. Ethnic and gender diversity have dominated current discussions on board and employee diversity, but the SEC’s Compliance and Disclosure Interpretations 116.11 and 133.33 recognize a greater range of diversity characteristics.  To the extent a board or nominating committee in determining the specific experience, qualifications, attributes, or skills of an individual for board membership has considered self-identified diversity characteristics (e.g., race, gender, ethnicity, religion, nationality, disability, sexual orientation, or cultural background) of an individual who has consented to the company's disclosure of those characteristics, the SEC staff would expect that the company's proxy discussion would include identifying those characteristics and how they were considered. Similarly, in these circumstances, the staff would expect any description of diversity policies to include a discussion of how the company considers the self-identified diversity attributes of nominees as well as any other qualifications its diversity policy takes into account, such as diverse work experiences, military service, or socio-economic or demographic characteristics. Our sample question for D&O questionnaires (copied below) invites directors to self-identify by gender, and according to categories of race and ethnicity consistent with the 2020 US Census and the EEO classifications, but the question also invites identification of a broader range of diversity characteristics, consistent with the SEC guidance discussed above.    Corporate secretaries who choose to include a director diversity question should review it against any existing board diversity policies.  They may also wish to provide directors with a supplemental explanation as to why they are being asked to self-identify and how the information will be used, particularly if it may be disclosed in the proxy statement and other media including the company website, responses to ESG surveys and the corporate responsibility report.  Corporate secretaries may also choose to emphasize that responses are optional. Sample Director Diversity Question: We are planning to disclose director diversity information in our [  ] Proxy Statement.  Please answer the following questions if you agree to inclusion of the information: Gender: Male Female Other: _____________ Prefer not to answer 2. Ethnicity or Race (check one or more): White Hispanic, Latinx or Spanish Origin Black or African American American Indian or Alaska Native Asian Native Hawaiian or Other Pacific Islander Other: ______________ Prefer not to answer 3. Other Diversity Characteristics that You Wish to Identify (e.g., religion, nationality, disability,   sexual orientation, military service or socio-economic or demographic characteristics):  ___________________________________________________________________ Please note that if you choose to provide this information, you consent to our possible public disclosure of the information in other public media, including on our website and our corporate responsibility report and in response to inquiries from surveys, analysts, shareholders or journalists.  

On August 26, 2020, the Securities and Exchange Commission (the “Commission”) adopted amendments to update the definition of “accredited investor” in the Commission’s rules governing certain kinds of private securities offerings, including securities offerings to natural persons and entities conducted pursuant to Rules 506(b) and 506(c) of Regulation D under the United States Securities Act of 1933, as amended (the “Securities Act”), and the definition of “qualified institutional buyer” in Rule 144A under the Securities Act. The amendments to the accredited investor definition (i) add new categories of qualifying natural persons, including a category based on professional knowledge, experience or certifications and a category for knowledgable employees of private funds; (ii) add new categories of entities, including “family offices with at least $5 million in assets under management and a “catch-all” category for any entity which owns investments in excess of $5 million; and (ii) make certain other modifications to the existing definition.  The amendments to the qualified institutional buyer definition similarly expand the list of eligible entities under that definition. The current defintion of “accredited investor” had not been significantly updated for over three decades.  The adopted amendments are meant to expand the number of persons eligible to participate in private offerings based on knowledge and sophistication versus the prior rules focus on income and net worth. Notably, the adopted amendments did not raise the standards for individual income ($200,000 for an individual, $300,000 for a married couple) or net worth ($1,000,000), which were established in 1982 and which many have argued should be updated for inflation. The amendments will become effective 60 days following formal publication in the Federal Register, which means the rules will start to apply to new offerings in early November.  You can read the full text of the Final Rule here. Accredited Investor Definition The amendments to the accredited investor definition in Rule 501(a) include: Natural Person Categories Adding a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order. In conjunction with the adoption of the amendments, the Commission designated by order holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons. The Commission may designate other certifications, designations, or credentials by the Commission order, providing the Commission with flexibility to reevaluate or add certifications, designations, or credentials in the future. Including as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund. Adding the term “spousal equivalent” to the accredited investor definition. The amendments allow unmarried couples to pool their assets for purposes of income and net worth tests, so long as the individuals are “spousal equivalents,” defined to mean a cohabitant occupying a relationship generally equivalent to that of a spouse. Expanded Entity Categories Adding a new “catch-all” catergory for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered, Clarifying that limited liability companies with $5 million in assets may be accredited investors. Adding Commission- and state-registered investment advisers, exempt reporting advisers, and rural business investment companies (RBICs) to the list of entities that may qualify. Adding “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act. The amendments apply only to a family office that was not formed for the specific purposes of acquiring the securities offered and whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that the family office is capable of evaluating the merits and risks of the prospective investment. The amendment to Rule 215, which is applicable to securities offerings made under Section 4(a)(5) of the Securities Act, replaces the existing definition with a cross reference to the definition in Rule 501(a). The Commission also adopted conforming amendments to Rule 163B under the Securities Act and to Rule 15g-1 under the Exchange Act. Qualified Institutional Buyers The amendments expand the definition of “qualified institutional buyer” in Rule 144A to include limited liability companies and RBICs if they meet the $100 million in securities owned and invested threshold in the definition.  The amendments also add to the list any institutional investors included in the accredited investor definition that are not otherwise enumerated in the definition of “qualified institutional buyer,” provided they satisfy the $100 million threshold.

Companies have offered benefits to employees, including executive officers, to enable them to continue their work and otherwise to make their lives easier during the COVID-19 pandemic.  Now the SEC has released additional guidance as to when these benefits constitute perquisites or personal benefits that should be included in executive compensation for proxy disclosure purposes.  See Question 219.05 of the SEC's Compliance and Disclosure Interpretations.  In brief, reporting companies are to apply the SEC's existing  two-step analysis to identify whether an item constitutes a perquisite or personal benefit: An item is not a perquisite or personal benefit if it is integrally and directly related to the performance of the executive’s duties. Otherwise, an item that confers a direct or indirect benefit and that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, is a perquisite or personal benefit unless it is generally available on a non-discriminatory basis to all employees. While the analysis is fact-specific, the SEC staff indicates that enhanced technology needed to work from home during a stay-at-home order would generally not be a perquisite, because of the integral and direct relationship to the performance of the executive's duties.  It is worth noting that as long as there is that "integral and direct" relationship, the item is not a perquisite, even if confers an ancillary personal benefit. In contrast, health-related or personal transportation benefits provided to address new risks because of the pandemic may not be integrally and directly related to the performance of the executive's duties, and should be considered perquisites unless they are generally available to all employees. Director benefits are subject to the same two-step analysis, and while director perquisites have been on a downward trend, we would expect that the guidance also applies to director benefits where relevant.

The Securities and Exchange Commission (the “SEC”) has adopted amendments to Regulation S-K to update the description of business (Item 101), legal proceedings (Item 103), and risk factors (Item 105) that public companies are required to provide in certain registration statements and reports. These disclosure requirements have not undergone significant revisions in over 30 years. In related remarks, SEC Chair Jay Clayton emphasized the modernizing impact of the amendments, and their basis in materiality judgments and the principles-based disclosure framework. A tabular summary of the changes can be found on page 8 in the adopting release.   Among other things, the amendments that impact the business description: adopt a principles-based approach to the business description (which appears in certain registration statements and the annual report), eliminating the prescribed five-year time frame, and permitting a company to disclose only material developments that have occurred since its most recent full business description, with the full business description incorporated by reference from a prior filing; and provide an updated, non-exclusive list of examples for the business description, adding a description of human capital resources, including any human capital measures or objectives that management focuses on in managing the business, to the extent such disclosures would be material to an understanding of the business; material changes to a registrant’s previously disclosed business strategy; and a description of all material government regulations, not just environmental laws. The amendments that impact the description of legal proceedings: specify that the required information on legal proceedings may be provided by hyperlink or cross-reference to another part of the document; and increase the threshold for disclosure of governmental environmental proceedings resulting in monetary sanctions, from $100,000 to $300,000, but also allow a company, at its election, to select a different threshold that it determines is reasonably designed to result in disclosure of material environmental proceedings, provided that the threshold does not exceed the lesser of $1 million or one percent of the company's current assets.If a company chooses to use a threshold other than the $300,000 threshold, it must disclose that threshold (including any change thereto) in each annual and quarterly report. As an aside, "environmental proceedings" historically have been construed broadly by the SEC, including issuance of informal or formal notices of violation, administrative orders, civil suits in which a party seeks injunctive relief and civil fines, or criminal prosecutions. The amendments that impact risk factors: require summary risk factor disclosure of no more than two pages if the risk factor section exceeds 15 pages, namely, a series of concise, bulleted or numbered statements summarizing the principal factors that make an investment in the company or offering speculative or risky; and require risk factors to be organized under relevant headings in addition to the subcaptions currently required, with any risk factors that may generally apply to an investment in securities disclosed at the end of the risk factor section under a separate caption for “General Risk Factors.”The SEC notes that except for the heading for general risk factors, the amendments do not specify other headings that companies should use, and many companies already organize their risk factor disclosure through groupings of related risk factors and the use of headings. These amendments will become effective 30 days after publication in the Federal Register, potentially in time to impact third quarter reports by calendar year-end companies.  However, the impact may be limited, since quarterly reports on Form 10-Q do not include a business description, and they only require the disclosure of material developments in legal proceedings and material changes in risk factors, as previously disclosed in the last Form 10-K. The final amendments to Items 101 and 103 will affect only domestic registrants and “foreign private issuers” that have elected to file on domestic forms subject to Regulation S-K disclosure requirements.  Regulation S-K does not apply to foreign private issuers unless a form reserved for foreign private issuers (such as Securities Act Form F-1, F-3, or F-4) specifically refers to Regulation S-K.

The Securities and Exchange Commission continues to encourage public companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management and to proactively revise and update disclosures as facts and circumstances change. Ahead of public company reports of their second quarter results, the SEC's Division of Corporation Finance has released a supplement to CF Disclosure Guidance Topic No. 9 (summarized here).  The supplement presents a series of additional questions that companies should consider for how the COVID-19 pandemic has affected their businesses, financial condition and results of operations. Public companies are asked to consider whether there are material operational and financial adjustments which should be disclosed in quarterly report on Form 10-Q, under the Management's Discussion and Analysis of Financial Condition and Results of Operations (the "MD&A").  Questions presented by the SEC staff include: What are the material operational challenges that management and the Board of Directors are monitoring and evaluating? How is your overall liquidity position and outlook evolving? Have you reduced your capital expenditures and if so, how? Have you reduced or suspended share repurchase programs or dividend payments? Have you modified contractual arrangements (eg, with customers, landlords or suppliers) in response to COVID-19 in such a way that the revised terms may materially impact your financial condition, liquidity, and capital resources? Have you assessed the impact material events that occurred after the end of the reporting period, but before the financial statements were issued, have had or are reasonably likely to have on your liquidity and capital resources and considered whether disclosure of subsequent events in the financial statements and known trends or uncertainties in MD&A is required? In the supplement, the SEC staff encourages public companies receiving federal assistance through the CARES Act, including loans and tax relief, to consider the short- and long-term impact of that assistance on their financial condition, results of operations, liquidity, and capital resources, as well as the related disclosures and critical accounting estimates and assumptions. The SEC staff reminds public companies that at each annual and interim reporting period, US generally accepted accounting principles ("GAAP") requires management to evaluate whether there are conditions or events that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued.  Where there is substantial doubt, or the substantial doubt is alleviated by management’s plans, management should provide the appropriate respective disclosures in the financial statements and consider MD&A disclosure.  In drafting these disclosures, we would encourage public companies to review Accounting Standards Codification 205-40-50-13.

On May 21, 2020, the Securities and Exchange Commission announced rule and form amendments that will affect registrants’ financial disclosures relating to business acquisitions and dispositions.  The amendments are intended to streamline the required disclosures, make more meaningful information available to investors and facilitate access to capital.  These amendments mark the culmination of a year-long effort by the SEC that began with proposed rules changes in Release 33-10635, issued on May 3, 2019. BACKGROUND In order to ensure that investors are adequately informed of a registrant’s important actions, Rule 3-05 of Regulation S-X generally requires a registrant to provide separate financial statements of a business being acquired. The scope of the financial statements depends on the relative “significance” of the acquired business to the registrant, with significance assessed in accordance with asset, investment and income significance tests outlined in Regulation S-K, Rule 1-02(w).[1] Article 11 of Regulation S-X requires the registrant to provide pro forma financial information regarding a proposed acquisition or disposition.  This usually includes a pro forma balance sheet and pro forma income statement based on the registrant’s historical financials, with adjustments to illustrate how the acquisition or disposition might have impacted the historical financials if it had occurred at an earlier date. HIGHLIGHTS OF AMENDMENTS Here are some of the most important amendments[2]: Update the “significance” test in Rule 1-02(w).  These changes accomplish the following: Revise the investment test to compare the registrant’s investments in (and advances to) the acquired business to the registrant’s aggregate worldwide market value of its common equity, if available - rather than to its total assets in its most recent annual financial statements; if worldwide market value is not available, the existing test continues to apply; Revise the income test to add a revenue component; Expand the use of pro forma financial information in determining significance; Conform the significance tests for business dispositions to those used for business acquisitions. Enhance disclosure of the impact of an acquisition for which financial statements are not required. These amendments eliminate the requirement for historical financial statements for any business that is not “significant.”  Investors must instead rely on expanded pro forma financial information to assess the impact of the business on the registrant. Limit required acquired business financial statements to the two most recent fiscal years. Current rules can require up to three years of acquired business historical financial statements, depending on the significance of the acquisition. Permit disclosure of “abbreviated” financial statements in certain circumstances when a registrant acquires assets that do not constitute a separate entity, subsidiary, segment or division of the seller. Registrants often acquire net assets that do not constitute a separate business of the seller.  Often these businesses may not have separate financial statements.  In those situations, it is often not practicable to prepare financial statements that meet the requirements of Rule 3-05, and the SEC exercised its discretion under Rule 3-13 to permit registrants to provide abbreviated financial statements that do not reflect the allocation of corporate overhead, interest and income tax expenses.  This approach is now expressly provided for in Rule 3-05(e) if certain conditions are met. Eliminate requirement for separate target financials once the acquired business has been included in the registrant’s financials for either nine months or a full fiscal year. Whether the threshold is nine months or a full fiscal year depends on the significance of the acquired business to the registrant.  In contrast, current rules can require separate acquired business financials for up to two complete registrant fiscal years after the acquisition has been completed. Permit the use of, or reconciliation to, International Financial Reporting Standards in certain circumstances. The International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, are the global equivalent of U.S. Generally Accepted Accounting Principles (“GAAP”).  They are used in more than 120 countries, with a noteworthy exception of the United States.  For acquisitions on non-US companies, U.S. registrants will have the ability to rely on financial statements prepared in accordance with IFRS in certain circumstances. Amend pro forma information requirements to improve their content and relevance. The pro forma information required by Article 11 of Regulation S-K generally includes certain adjustments to illustrate how an acquisition or disposition might have impacted the registrant’s historical financials if it had occurred earlier.  A narrow range of adjustments is allowed for income statements, while a broader range of adjustment is permitted for balance sheets.  The SEC has revised Article 11 to replace the existing pro forma adjustment criteria with the following adjustments: “Transaction Accounting Adjustments,” which reflect only the application of required accounting principles to the transaction, linking the effects of the acquired business to the registrant’s audited historical financial statements; “Autonomous Entity Adjustments,” which reflect the operations and financial position of the registrant as an autonomous entity, if the registrant was previously part of another entity; Optional “Management’s Adjustments,” to reflect synergies (or lack of synergies) of an acquisition or disposition if, in management’s opinion, such adjustments will enhance an understanding of the pro forma effects of the transaction. To take advantage of Management’s Adjustments, the registrant must adhere to certain conditions related to the basis and form of presentation of the pro forma information. Make corresponding changes to the smaller reporting company requirements in Article 8 of Regulation S-K. The changes to SRC requirements will also apply to any issuer relying on Regulation A. EFFECTIVE DATE OF AMENDMENTS; MORE INFORMATION The amendments will be effective January 1, 2021, but voluntary early compliance is permitted.  The full text of the final rules can be found at https://www.sec.gov/rules/final/2020/33-10786.pdf [1] Special rules apply to acquisitions of real estate operations, which are governed by Rule 3-14 rather than Rule 3-05.  Amendments to Rule 3-14 are beyond the scope of this post. [2] Many of the amendments impact acquisitions involving registered investment companies and business development companies.  The amendments as they relate to registered investment companies and business development companies are beyond the scope of this post.

On May 4, 2020, the SEC announced final rules that provide temporary, conditional relief from certain requirements of Regulation Crowdfunding, relating to the timing of the offering and the availability of financial statements in issuers’ offering materials.   This relief was effective immediately and is available to certain issuers that meet the eligibility criteria described below. The SEC adopted the temporary rules in response to feedback received by the Small Business Capital Formation Advisory Committee. The rules are intended to expedite the offering process for smaller companies directly or indirectly affected by COVID-19 that are seeking to use Regulation Crowdfunding to meet their funding needs. The amendments apply to securities offerings initiated under Regulation Crowdfunding between May 4, 2020, and August 31, 2020. The amendments provide flexibility for smaller issuers that meet the following eligibility criteria (in addition to current eligibility criteria to use Regulation Crowdfunding): the issuer cannot have been organized and cannot have been operating less than six months prior to the commencement of the offering; and any issuer that has sold securities in a Regulation Crowdfunding offering in the past must have complied with the requirements in section 4A(b) of the Securities Act of 1933, as amended, and the related rules. Such issuers may assess interest in an offering prior to preparation of full offering materials. If such issuers launch an offering, they may close and have access to funds sooner than under existing rules. Subject to certain qualifications detailed in the table below, under the temporary relief, such issuers may close as soon as binding commitments are received for the target amount of the offering.  Under existing rules, issuers could not close for at least 21 days following the target amount being reached. The temporary rules also provide an exemption from certain financial statement review requirements for issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period. The following table from the SEC’s release summarizes the existing rules and the temporary amendments: Click here to view the table

On April 29, 2020, the SEC issued new Compliance & Disclosure Interpretations (the “New C&DIs”) that clarified the compliance deadline for many mining companies that file with the SEC on non-MJDS forms such as Form 10-K or Form 20-F to comply with the SEC’s new mining disclosure rules in Subpart 1300 of Regulation S-K. The New C&DIs follow closely on the heels of the National Mining Association having submitted a letter on April 24, 2020, to the SEC’s Chairman, Jay Clayton, requesting a one-year delay in the Subpart 1300 compliance deadline in light of the COVID-19 pandemic. The SEC’s adopting release for Subpart 1300 on October 31, 2018, had required that mining companies begin complying with the new rules, including the filing of technical report summaries, beginning with the annual report filed for the company’s first fiscal year beginning on or after January 1, 2021 (in other words, in early 2022 for calendar year companies, and later in 2022 or very early 2023 for other companies). However, that timeline was to be accelerated for new registrants and also, apparently, for companies accessing the public markets, with compliance required beginning January 1, 2021, for any registration statement filed on or after that date. The treatment of shelf takedowns from existing registration statements after January 1, 2021, was not specifically addressed. The New C&DIs provide much-needed clarity regarding the Subpart 1300 compliance deadline for many mining companies: For non-calendar year companies, Subpart 1300 will not apply until the beginning of the company’s first fiscal year on or after January 1, 2021. For example, a company with a June 30 fiscal year end will not in any circumstance become subject to Subpart 1300 until July 1, 2021. If a company files a Securities Act registration statement after the beginning of its first fiscal year on or after January 1, 2021, and prior to its annual report for such fiscal year[1], it is not required to comply with Subpart 1300 in the Securities Act registration statement if the form being used permits incorporation by reference of information from a prior annual report that was not subject to Subpart 1300, and such disclosure is not otherwise prohibited under the SEC’s rules. For example, if a calendar-year end company files a Form S-3 or Form F-3 during 2021, it may incorporate its annual report on Form 10-K or Form 20-F for the fiscal year ended December 31, 2020, even if that report contains disclosure in accordance with SEC Industry Guide 7. As a result of the New C&DIs, many mining companies that are working on implementing Subpart 1300 will not be required to comply with the new rules until the date in 2022 when they file their annual report for their first fiscal year beginning on or after January 1, 2021. The exception to this rule will be companies that file an initial Exchange Act registration statement or a Securities Act registration statement that does not permit incorporation by reference[2] after the start of their first fiscal year beginning on or after January 1, 2021. Those filings will trigger early compliance with Subpart 1300. The New C&DIs are available at sec.gov/divisions/corpfin/guidance/regs-kinterp.htm#section155. The SEC’s adopting release for Subpart 1300 is available at sec.gov/rules/final/2018/33-10570.pdf. Links for Dorsey's prior Q&A and webinar regarding Subpart 1300 are available at dorsey.com/newsresources/publications/client-alerts/2019/02/new-mining-disclosure-rules-2019 and youtube.com/watch?v=o5RiFT8g460, respectively. [1] Technically, the New C&DIs refer to the date on which audited financial statements for such fiscal year are required to be included in the Securities Act registration statement. [2] For example, Forms F-1 and S-1, the SEC’s equivalents to a “long form” prospectus, do not permit incorporation by reference if the company (i) is a new registrant, (ii) has not yet filed its SEC annual report for its most recently completed fiscal year, (iii) is delinquent in its SEC reports, (iii) is or was, or has a predecessor that was, within the last three years, a blank check company, a shell company, or a registrant for an offering of penny stock, or (iv) is registering a business combination. Forms F-4 and S-4, which are used to register business combinations, also include restrictions on incorporation by reference, depending on the nature of the registrant and the company being acquired.