As news swirls that Facebook will make its IPO in the first quarter of 2012, largely due to current laws related to financial disclosure (which mandate that when a company hits the mark of 500 shareholders it must publicly disclose financial statements), some members of Congressional leadership are proposing amendments to an anachronistic set of regulations that has stood pat since the Securities and Exchange Act of 1934.
The amendments come in the form of a new bill, co-authored by Republican Dave Schweikert (-AZ) and Democrat Jim Himes (-CT), and demonstrate ” a recognition that the IPO market has changed forever,” according to Barry Silbert, founder and CEO of SecondMarket.
The three major changes included in the new legislation are 1)expanding the “500 shareholder rule” to 1000 shareholders, effectively allowing more time for young tech starters and bio-fuels companies to gain momentum before they are strategically incentivized to IPO.
2) Exempt employees from the shareholder count, no hidden meaning here, this clause would enhance the efficacy of the first amendment, allowing companies to offer employees more compensation in the form of stock options without inching near the dreaded 500 shareholder mark.
3) Exempt accredited investors from the shareholder count, this change too will help companies take longer to reach a critical point in shareholder numbers. Exemptions will be given to “accredited investors” meaning big capital investors such as VCs, major banks, hedge funds, and individuals with a net worth exceeding $ 1 million.
Combined, the three amendments have a clear goal in mind, to keep private company’s off public markets for a longer period of time, or at least balance the incentives against having to enter an IPO. From Fortune, “Sources tell Fortune that the bill currently has six co-sponsors in the House, including four Republicans and two Democrats. The SEC also has signaled some tacit support for the overall goal, based on this letter from chair Mary Shapiro to Rep. Darryl Issa (R-CA) back in April.”
It is unlikely that the proposed changes will have an impact on Facebook’s coming IPO.