What it means
Once a company registers its securities, it must file annual, quarterly and current reports until the duty is formally ended. Form 15 is the tool for ending it.
The company certifies that it meets the conditions for deregistration and the SEC's system records the notice. The conditions are based on the number of holders of record and, in some cases, on the size of the company's assets.
As a general guide, a company may use Form 15 when its class of securities is held by fewer than 300 holders of record, with a higher limit for banks and bank holding companies. Other tests exist for smaller companies, and all the thresholds are set by the SEC's rules and the law, so check the current version.
Companies file Form 15 for different reasons. After a merger or buyout, the acquirer may own all the shares, leaving no public holders to protect with periodic reports.
A company may also decide that the cost of audits, certifications and filings outweighs the benefits of being public, particularly if few investors trade its shares. The effects are significant.
Once the filing is made, the duty to file many periodic reports is suspended, and the registration itself terminates after a waiting period. Public investors lose the regular information flow and insiders may no longer face the same reporting rules, which is why some shareholders view deregistration with suspicion.
Companies must still observe other legal duties. Contractual obligations to lenders or shareholders may require continued reporting, and state corporate law and anti-fraud rules still apply.
An exchange listing generally has to be removed first through a separate process. Boards should weigh the savings against the loss of liquidity and visibility.
Many companies that deregister find it harder to raise capital from the public or to use shares as acquisition currency afterwards.
In practice
Real-world examples.
Example
A private equity firm buys all the shares of a listed manufacturer. The manufacturer files a Form 15 to end its reporting duties, since no public shareholders remain.
Example
A small bank holding company with fewer than the permitted number of holders decides that annual compliance costs are too high. It files Form 15 after confirming that it meets the conditions.
Example
A thinly traded technology company concludes that reporting costs of $750,000 a year outweigh the benefits. It files a Form 15 and tells shareholders it will provide limited financial updates on its website. Some investors welcome the saving, while others worry about the loss of detail.
Formula
Calculation
Annual Reporting Cost Saved = Annual Cost of Public Reporting - Annual Cost After Deregistration
Net Saving over a Period = Annual Reporting Cost Saved x Years
Worked example for a fictional company. Audit, legal, filing and certification costs for public reporting total $900,000 a year. After deregistration the company expects to spend $300,000 a year on audits for lenders and other needs.
Annual Reporting Cost Saved = $900,000 - $300,000 = $600,000
Net Saving over 5 years = $600,000 x 5 = $3,000,000
The company would weigh this saving against lost access to public investors.Case study
Seen in the real world.
Baxter Print Group is an illustrative, fictional printing company with 280 holders of record and only occasional trading. Public reporting cost it about $800,000 a year, about 4% of its $20,000,000 of annual profit.
The board studied the options and concluded that deregistration would save money and let management focus on the business. It first confirmed with its lawyers that the holder count was safely below the threshold and not likely to rise. It also arranged to send shareholders an annual financial summary and a copy of the audited accounts on request. The directors recorded in the minutes that they had considered the interests of the smaller shareholders.
After the illustrative Form 15 was filed and the waiting period ended, reporting stopped. A few shareholders complained about less information, but the board felt the savings were worth it and the company continued to pay dividends. The saving of roughly $600,000 a year was split between higher dividends and new equipment.
Watch out
Common mistakes.
- Assuming Form 15 can be filed by any company at any time, when the holder-of-record conditions must be met.
- Forgetting contractual duties to lenders or shareholders that may require continued reporting.
- Ignoring the effect on shareholders, who lose public information and may find their shares harder to sell.
Questions
People also ask.
What does going dark mean?
It means a company stops filing regular public reports with the SEC after ending its registration.
Does Form 15 end all legal duties?
No, anti-fraud rules, state corporate law and contractual duties still apply.
Who might benefit from deregistering?
Companies with few holders, thin trading or high compliance costs relative to their size may benefit, provided that the loss of public visibility is acceptable to the board and shareholders.
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