Are you a public corporation? And the price of your shares are constantly below the standard price? The best solution could be to delist your securities. You can also delist them if you’re thinking of going private. The delisting of securities is done with the help of SEC Form 25. For an in-depth knowledge of this form, stay tuned!
What is SEC Form 25?
SEC Form 25 is a document that a public corporation must submit under Rule 12d2-2 of the Securities Exchange Act of 1934, with the Securities and Exchange Commission (SEC) to delist its securities.
Under Rule 12d2-2, the corporation must publish a press statement and provide notice of its decision to delist on its website at least 10 days before the delisting takes effect.
The delisting will take effect 10 days after the SEC receives Form 25, and most reporting responsibilities will be terminated as of that date. The official suspension of registration under Section 12(b) of the Securities Exchange Act, however, does not take place until 90 days after the delisting takes effect.
SEC Form 25: An Introduction
For a variety of reasons, securities may be delisted from an exchange. A company's bonds may have matured, been issued, or redeemed. A firm may decide to go private by paying cash for all or a significant portion of its public offering, or its outstanding securities may have been swapped for cash or some other security as part of a takeover.
It may just wish to voluntary basis delist from a national securities exchange or an inter-dealer quotation system in order to postpone or decrease the company's Securities Exchange Act public reporting accountabilities.
Public firms with a market valuation of less than $50 million and turnover of less than $100 million face significant compliance expenses. The expense of maintaining public company status can range from $1 million to $3 million every year. It might be difficult to raise funds to meet SEC disclosure requirements if a firm's stock price is falling. During downturns in the economy, many small businesses delist.
There has been a phrase that’s being continuously used, i.e delisting the securities. Let's have a look at what it means and how it works.
Delisting is basically the withdrawal of listed security from a stock exchange. A firm's delisting can be voluntary or involuntary, and it generally occurs when the firm ceases its operations, claims bankruptcy, merges, fails to satisfy listing standards, or tries to go private.
How Does Delisting Work?
Before a company can be listed on an exchange, it must fulfil certain criteria known as "listing standards." Each exchange, say for example the New York Stock Exchange (NYSE), has its own collection of listing guidelines and restrictions. Companies that fail to fulfil an exchange's minimal requirements will be delisted involuntarily.
The most prevalent standard is cost. For example, if a company's stock price has been below $1 per share for several months, it may face delisting. Alternatively, a firm can apply to be delisted voluntarily.
When a cost-benefit analysis reveals that the expenses of being publicly owned outweigh the advantages, some firms prefer to become privately owned. When firms are bought by private equity firms and are restructured by new owners, delisting requests become common. These firms can request to be delisted and traded privately. In addition, when listed firms consolidate and trade as a single entity, the formerly independent firms can request delisting willingly.
The Involuntary Delisting of a Company
The major reason for delisting is the violations of rules and failure to satisfy minimal financial norms. The capacity to keep a minimum share price, profitability ratios and sales targets are all examples of financial standards. The listing exchange provides a noncompliance alert when a firm fails to follow listing standards. The exchange will delist the company's stock if non-compliance persists.
Some firms will reverse split the stock shares in order to avoid being delisted. This effectively merges many shares into one and multiplies the share price. For example, a 1 for 10 reverse splits might lift a company's share price from 75 cents per share to $5 per share, thereby removing it from the risk of delisting.
Delisting can have serious impacts since company shares that aren't listed on one of the main stock exchanges are much more challenging for investors to investigate and buy. This implies the firm will be unable to offer additional shares to the market in order to fund new business ventures.
Involuntary delistings are usually a sign of a company's financial distress or poor corporate management. An exchange's warnings should be taken carefully. There’s a notable example of the famous apparel store, Aéropostale Inc. This brand was delisted for noncompliance in April 2016, five months after receiving a warning from the NYSE.
The firm declared bankruptcy in May 2016 and started trading over-the-counter (OTC). Delisted securities could be traded over-the-counter in the United States unless they are delisted to become a private firm or because of insolvency.
A Quick Overview On Over-the-counter (OTC)
Over-the-counter (OTC) refers to how securities are traded over the counter, rather than on a centralised exchange, through a broker-dealer network. Equities, debt securities, and derivatives, which are financial contracts that acquire their value from an underlying asset such as a commodity, can all be traded over-the-counter.
Securities may not fulfil the qualifications for a normal market exchange listing, such as the New York Stock Exchange, in several instances (NYSE). These securities, on the other hand, can be exchanged over-the-counter.
Over-the-counter trading, on the other hand, can comprise both exchange-listed and non-listed stocks. Stocks that are not registered on a stock exchange and trade over the counter are known as over-the-counter equity securities, or OTC equities.
How Can a Company Stay Listed?
The standards for listing differ from one exchange to the next. On the New York Stock Exchange (NYSE), for example, if a stock's price closed below $1.00 for 30 business days in a row, the exchange would begin the delisting procedure.
Furthermore, the main exchanges set a market valuation, minimum shareholder equity, and revenue production criteria. From an accounting standpoint, public firms must pay their yearly listing fees to exchanges on time, as well as cover the hefty legal and regulatory costs connected with listing on an exchange.
What Happens If a Company Isn’t Complaint?
A firm that fails to comply with the terms set by the exchange on which its shares is listed is sent a non-compliance letter. However, a company's stock is not instantly removed from the exchange. Rather, the letter is an invitation to the offending company to respond with a summary of the steps it intends to take to rectify the delinquencies at hand.
If the exchange approves the conditions of the corrective plan, it will keep track of the company's financial development to ensure that the company's financial milestones are fulfilled on schedule. However, if a firm does not reply within 10 working days of receiving a demand notice, the exchange will quickly delist the company.
Remarkable Considerations Under SEC Form 25
The perks of being a public firm may be significantly reduced if you don't have a stock market listing. As a result, some businesses opt to remain anonymous rather than go private. The act of totally delisting from a securities market is known as going private. Going private is a lengthy procedure that includes significant and thorough disclosure filings under SEC Rule 13e-3.
Governing shareholders or a third party that purchased the firm often conduct the transactions for becoming private. A firm, on the other side, can go dark without a shareholder vote, a justice opinion, any cashout payment, or a complicated regulatory procedure. The firm's shares will also continue to trade on the Pink Sheets without being subjected to any reporting obligations.
Basic Requirements of SEC Form 25
During the Great Depression, the Securities Exchange Act of 1934 was enacted, which sets down certain rules for public corporations. Since then, it has been changed several times. Annual reports must be filed on Form 10-K, quarterly reports must be filed on Form 10-Q, and any current reports must be filed on Form 8-K.
Any big occurrence that shareholders should be aware of should be reported using Form 8-K. Bankruptcy, the conclusion of an asset purchase or disposal, or the signing of a major final agreement are just a few instances.
Companies that do not wish to go public might nevertheless be subject to the Securities Exchange Act if their assets are worth more than $10 million and are owned by more than 2,000 authorised investors or 500 non-accredited investors. 7 Private firms that give their staff shares are one example. The law was enacted to give investors a tool to analyse firms and regulators in order to guarantee that they are transparent.
SEC Form 25
NOTIFICATION OF REMOVAL FROM LISTING AND/OR REGISTRATION UNDER SECTION 12(b) OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number_________________
(Exact name of Issuer as specified in its charter, and name of Exchange where security is listed and/or registered)
(Address, including zip code, and telephone number, including area code, of Issuer’s principal executive offices)
(Description of class of securities)
Please place an X in the box to designate the rule provision relied upon to strike the class of securities from listing and registration:
- 17 CFR 240.12d2-2(a)(1)
- 17 CFR 240.12d2-2(a)(2)
- 17 CFR 240.12d2-2(a)(3)
- 17 CFR 240.12d2-2(a)(4)
- Pursuant to 17 CFR 240.12d2-2(b), the Exchange has complied with its rules to strike the class of securities from listing and/or withdraw registration on the Exchange.1
- Pursuant to 17 CFR 240.12d2-2(c), the Issuer has complied with the rules of the Exchange and the requirements of 17 CFR 240.12d2-2(c) governing the voluntary withdrawal of the class of securities from listing and registration on the Exchange.
Pursuant to the requirements of the Securities Exchange Act of 1934, ___________________(Name of Issuer or Exchange) certifies that it has reasonable grounds to believe that it meets all of the requirements for filing the Form 25 and has caused this notification to be signed on its behalf by the undersigned duly authorized person.
_______________ By______________ _____________
Date Name Title
1. Form 25 and attached Notice will be considered compliance with the provisions of 17 CFR 240.19d-1 as applicable. See General Instructions.
Persons who respond to the collection of information contained SEC 1654 (03-06) in this form are not required to respond unless the form displays a currently valid OMB control number.
1. This form is required by Rule 12d2-2 (17 CFR 240.12d2-2) of the General Rules and Regulations under the Securities Exchange Act of 1934 (“Exchange Act”).
2. Exchanges: Attach the delisting determination to this Form 25 to serve as the required Notice pursuant to Exchange Act Rule19d-1 (17 CFR 240.19d-1). Form 25 and the attached Notice will be considered compliance with the provisions of Rule 19d-1 as applicable.
3. The Form 25 and any attachments must be filed electronically on the EDGAR database.
4. The removal of the class of securities from listing on the exchange shall be effective 10 days after filing the Form 25. With respect to the filing of any amendment to Form 25, the removal of the class of securities from listing on the exchange shall be effective10 days after filing the amended Form 25.
5. The withdrawal of registration of a class of securities registered under Section 12(b) of the Exchange Act shall take effect in 90 days, or such shorter period as the Commission may determine after the exchange or issuer files a Form 25 with the Commission. With respect to the filing of any amendment to Form 25, the withdrawal of registration of a class of securities registered under Section 12(b) shall take effect in 90 days, or such shorter period as the Commission may determine, after the exchange or issuer files the amended Form 25.
6. For purposes of Section 12 of the Exchange Act, a class of securities shall no longer be considered listed on a national securities exchange upon the effective date of delisting even though the withdrawal of registration is effective at a later time.
7. The issuer’s duty to file any reports under Section 13(a) of the Exchange Act and the rules and regulations thereunder as a result of the security’s registration under Section 12(b) of the Exchange Act shall be suspended upon the effective date of the delisting. If, following the effective date of delisting, the withdrawal of registration under Section 12(b) is delayed by the Commission, an exchange, or an issuer, the issuer shall, within 60 days of such delay, file any reports that would have been required under Section 13(a) and the rules and regulations thereunder, had the Form 25 not been filed. The issuer will also file any subsequent reports required under Section 13(a) for the duration of the delay.
8. An issuer whose reporting responsibilities under Section 13(a) of the Exchange Act are suspended for a class of securities under Rule 12d2-2(d)(5) is, nevertheless, required to file any reports that an issuer with such a class of securities registered under Section 12 of the Exchange Act would be required to file under Section 13(a) if such class of securities:
(a) is registered under Section 12(g) of the Exchange Act; or
(b) would be registered, or would be required to be registered, under Section 12(g) of the Exchange Act but for the exemption from registration under Section 12(g) provided by Section 12(g)(2)(A) of the Exchange Act.
9. An issuer whose reporting responsibilities under Section 13(a) of the Exchange Act are suspended under Rule 12d2-2(d)(5) is, nevertheless, required to file any reports that would be required under Section 15(d) of the Exchange Act but for the fact that the reporting obligations are: (a) suspended for a class of securities under Rule 12d2-2(d)(5); and (b) suspended, terminated, or otherwise absent under Section 12(g) of the Exchange Act. The reporting responsibilities of an issuer under Section 15(d) of the Exchange Act shall continue until the issuer is required to file reports under Section 13(a) of the Exchange Act or the issuer’s reporting responsibilities under Section 15(d) are otherwise suspended.
10. Issuers should determine if they have additional registration and reporting requirements under Section 12(g) of the Exchange Act and reporting obligations pursuant to Section 15(d) of the Exchange Act upon the filing of Form 25.
11. In any case where the Commission has commenced a proceeding under Section 12 of the Exchange Act prior to the withdrawal of the registration of a class of securities becoming effective, such security will remain registered under Section 12(b) of the Exchange Act until the final decision of such proceeding, or until the Commission otherwise determines to suspend the effective date of, or revoke, the registration of a class of securities.
12. In the event removal is being effected under Rule 12d2-2(a)(3) and the national securities exchange has admitted or intends to admit successor security to trading under the temporary exemption provided for by Exchange Act Rule 12a-5 (17 CFR 240.12a-5) the Form 25 shall be filed with the Commission in a manner that ensures that the delisting does not become effective until the successor security is removed from its exempt status.
Final Rules Adopted by SEC on Exchange Delisting, Deregistration
- The Securities and Exchange Commission (SEC) amended its regulations governing the withdrawal of securities from exchange listings and deregistration of securities under Section 12 of the Exchange Act (d). Under the final regulations, issuers and national securities exchanges will use revised Form 25 to notify the SEC of delisting or deregistration, and it will be submitted electronically through the EDGAR system.
- In June 2004 (2004 CCH Dec. 87,226), the SEC suggested changes to the delisting and deregistration procedure in order to make the procedure more transparent and streamlined. In response to the proposal, the organisation received 3 comment letters and has approved the revisions in their entirety. The rules go into effect 30 days after they are published in the Federal Register. The exchanges will have 3 months to file any needed rule revisions to the SEC in order to implement the adjustments, and nine months from the date of issuance in the Federal Register, they must comply with the updated regulations.
- The Securities and Exchange Commission (SEC) has revised Rule 12d2-2 to allow a national securities exchange to delist a class of securities or withdraw the securities' registration by submitting applications on Form 25. The delisting of the securities will take effect 10 days after the SEC receives the Form 25. Unless the SEC deems otherwise, a withdrawal from registration will enter into force 90 days after filing Form 25.
- An issuer must be notified of an exchange's choice to delist securities and given the option to challenge the decision. Exchanges must also give the public at least 10 days' notice before the delisting takes effect. The decision to delist security must be publicised in a press statement and on the exchange's website. If the exchange's regulations do not already comply with these standards, it must do so by the SEC's compliance deadline. The exchanges must also send a copy of the Form 25 application to the issuer, which the SEC expects to happen at the same time as the Form 25 is filed.
- The Securities and Exchange Commission (SEC) requires public notice of a security's delisting at least 10 days before its effective date to allow investors and the general public to take any allowed actions. The 10-day notice period is a minimum requirement. If the exchange so desires, it may send notice of a delisting decision prior to the submission of the Form 25. Although the SEC seldom gets comments on delisting decisions, the final regulations allow anybody to petition the SEC for a review of an exchange's decision. A federal court of appeals would next have to reconsider the SEC's judgement.
- The SEC had solicited input on whether the Form 8-K reporting requirement for exchange-initiated delistings should be eliminated, but decided to keep it in place. Because the new 8-K disclosure requirements have just recently been effective, the SEC considered that it would be premature to implement any modifications at this time. Furthermore, the Form 8-K disclosure contains information not included in the Form 25, such as the company's plans as a result of the delisting. At a later point, the SEC may review the deletion of the 8-K report.
- Issuers that submit a Form 25 to remove their securities from an exchange's listing or registration must follow the exchange's delisting requirements as well as any applicable state legislation. They must notify the exchange in writing at least 10 days before filing the Form 25 and offer public notice through a news release and, if they have one, on their Web site. Issuers and exchanges must keep the notifications posted on their websites up until the delisting takes effect.
- By written notification from the Commission, any delays in the effective date of delisting or deregistration will be communicated to the exchange and the issuer. The SEC will also notify the public via its Web site or a news release about the delay. To prevent an issuer from abusing the 90-day withdrawal period to avoid its reporting duties under Exchange Act Section 13(a), the regulations require that any reports that would have been needed had the Form 25 not been submitted be filed within 60 days of the delay. For the period of the delay, the issuer will also be obligated to file any following reports on time.
- The SEC has issued Form 25 instructions, which include a requirement that the form be submitted via EDGAR. Issuers should also check if they have any extra reporting duties under Section 12(g) or reporting responsibilities under Section 15(d) once they file Form 25.
- The Securities and Exchange Commission (SEC) will no longer issue orders approving exchange delisting applications. The SEC changed Rule 19d-1 to state that the filing of a Form 25 will suffice as notification of delisting under Section 19 of the Exchange Act (d). Standardized options and securities futures products are likewise permanently excluded from Section 12(d) under the final regulations. The SEC determined that demanding their compliance would be ineffective.
How Deskera Can Assist You?
Simplify payroll management and generate payslips in minutes for your employees.