9.6. Ongoing Reporting and Disclosure Obligations

Whereas the registration of the offering itself is based on the Securities Act, a company that has completed one or more public offerings will be subject to reporting requirements based on the Exchange Act. In most cases, these ongoing obligations result from an issuer’s work with a firm like yours, and the exam will expect you to know something about the responsibilities arising from that relationship.

Recall from Chapter 7 that a reporting company is a company that is subject to SEC reporting under the Exchange Act. A company becomes a reporting company when one of three things happens:

1. A registration statement for a public offering by the company becomes effective.

2. A class of the company’s securities becomes listed on a national securities exchange, such as the NYSE or Nasdaq.

3. The company ends its fiscal year with total assets greater than $10,000,000, and a class of shares held by either:

» 500 or more non-accredited investors

or

» 2,000 or more total investors

Note that number 3 applies only in the case of equity securities, whereas numbers 1 and 2 can be triggered by either debt or equity securities. Note also that the class of securities that causes its issuer to become a reporting company must be registered with the SEC, regardless of whether it will be publicly offered. Sometimes, a company that acquires a large number of investors will conduct an IPO (or at least conduct it sooner than pl