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Private Placement Offerings

All offers or sales of securities must either be registered or qualify for an exemption from registration. Sections 3 and 4 of the Securities Act of 1933, as amended (“Securities Act”) set forth the exemptions available for certain transactions and certain offerings. Generally, the exemptions available are non-exclusive. In other words the sale of securities may be exempt from the registration requirements under more than one exemption, and a Company can claim as many exemptions as may apply. Exemptions are strictly as to the registration requirements of the Securities Act. Exempt offerings are still subject to other regulatory provisions and in particular the anti-fraud provisions of the Securities Act. Moreover, Companies must be sure to comply with both state and federal securities laws when offering its securities for sale. The term “accredited investor” is used often in discussing exemptions. An “accredited investor” is defined as:

 a bank, insurance company, registered investment company, business development company, or small business investment company;

an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;

 a charitable organization, corporation or partnership with assets exceeding $5 million;

 a director, executive officer, or general partner of the company selling the securities;

a business in which all the equity owners are accredited investors;

a natural person with a net worth of at least $1 million not including their primary residence;

 a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or

a trust with assets of at least $5 million, not formed to acquire the securities offered, and whose purchases are directed by a sophisticated person.

 

 

The following is a brief description of the most common exempt offerings: Private Offering Exemption The private offering exemption is the most widely used exemption. Section 4(a)(2) of the Securities Act exempts from registration “transactions by an issuer not involving any public offering.” To qualify for this exemption, the purchasers of the securities must:

 

 

 have enough knowledge and experience in finance and business matters to evaluate the risks and merits of the investment (the “sophisticated investor”), or be able to bear the investment’s economic risk;

have access to the type of information normally provided in a prospectus; and

agree not to resell or distribute the securities to the public for a minimum period of time, generally 6 months if the issuer is reporting and one year if the issuer is non-reporting

 

 

In addition, public solicitation and general advertising may not be used to effectuate sales to non-accredited investors. Rules 506(b) and (c), promulgated under the Securities Act, sets forth a “safe harbor” with objective standards that an issuer can rely on to meet the requirements of the 4(a)(2) exemption for both advertised and non-advertised offerings and Rule 506(d) provides for bad actor disqualification standard for use of the 506 exemptions. Regulation D Regulation D explains three exemptions from Securities Act registration. Rule 506(b) Rule 506(b) is a “safe harbor” for the private offering exemption. If your company satisfies the following standards, you can be assured that you are within the Section 4(a)(2) exemption:

 

 

 You can raise an unlimited amount of capital;

 You cannot use general solicitation or advertising to market the securities for offerings that sell to both accredited and unaccredited investors;

 You can use regulated and limited general solicitation and advertising for offerings that result in sales only to accredited investors

You can sell securities to an unlimited number of accredited investors and up to 35 other purchasers. All non-accredited investors, either alone or with a purchaser representative, must be sophisticated – that is, they must have sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment;

 It is up to you to decide what information you give to accredited investors, so long as it does not violate the antifraud prohibitions. But you must give non-accredited investors disclosure documents that generally are the same as those used in registered offerings. If you provide information to accredited investors, you must make this information available to the non-accredited investors as well;

 You must be available to answer questions by prospective purchasers;

Information requirements vary depending on whether the Company solicits anun-accredited investors. If a Company solicits even one unaccredited investors it must provide certain disclosures including audited financial statements prepared by a PCAOB qualified auditor; and

 Purchasers receive “restricted” securities. Consequently, purchasers may not freely trade the securities in the secondary market after the offering

 

 

Rule 506(c) Rule 506(C) is an exemption promulgated under Section 4(a)(2). If your company satisfies the following standards, they will have complied with Rule 506(c):

 

 

You can raise an unlimited amount of capital;

General solicitation is freely allowed however, all investors must be accredited;

 The Issuer must take reasonable steps to verify that the purchasers are accredited;

 All terms and conditions of Rule 501 (definitions) and Rules 502(a) (integration rule) and (d) (securities are restricted) must be satisfied;

 You can sell securities to an unlimited number of accredited investors

 All investors (accredited investors) must be given access to the type of information that would be available in a prospectus

You must be available to answer questions by prospective purchasers;

 Purchasers receive “restricted” securities. Consequently, purchasers may not freely trade the securities in the secondary market after the offering

 

 

Although the SEC declined to define what actions suffice as reasonable steps, leaving it to the Issuer to make a factual determination, the SEC did publish a non-exclusive list of methods that issuers may use to satisfy the verification requirement. According to the SEC, “whether the steps taken are ‘reasonable’ would be an objective determination, based on the particular facts and circumstances of each transaction.” Among the factors that issuers should consider under the fact and circumstance analysis are:

 

 

a. The nature of the purchaser and type of accredited investor they claim to be. For instance, if the purchaser is claiming that they are accredited because they are a broker dealer registered with the SEC, verification could be a simple check on the FINRA website. Of course, the hardest status to verify will be natural persons claiming they meet the net worth ($1 million) or income ($200,000 a year) requirements. Accordingly, as set forth below, the SEC final rule sets forth non-exclusive methods that issuers may use to satisfy the verification requirement.

b. The amount and type of information that the issuer has about the purchaser. Clearly, the more information, the better. The SEC lists the obvious (W-2; tax returns; letters from a bank or broker dealer). Moreover, although not required, it is assumed that an issuer should at least conduct a check of publicly available information.

c. Nature and terms of the offering, such as type of solicitation and minimum investment requirements. The example proffered by the SEC is an offering conducted by soliciting preapproved accredited investor lists from a reasonably reliable third party, vs. open-air solicitation via social media or television or radio advertising—the latter, of course, requiring greater verification than the former. The SEC highlights the obvious, such as that the higher the minimum investment required, the fewer steps an issuer would need to take to verify accreditation.

 

 

The SEC included four specific non-exclusive methods of verifying accredited investor status for natural persons which, if used, will be deemed to satisfy the verification requirements as long as the Issuer does not have actual knowledge that the purchaser is not accredited. Issuers are not required to use these methods of verification and can rely on their own reasonableness standard directed to the specific facts and circumstances. The non-exclusive methods of verification include:

 

 

aa. Review of copies of any Internal Revenue Service form that reports income including, but not limited to, a Form W-2, Form 1099, Schedule K-1 and a copy of a filed Form 1040 for the two most recent years along with a written representation that the person reasonably expects to reach the level necessary to qualify as an accredited investor during the current year. If such forms and information are joint with a spouse, the written representation must be from both spouses.

bb. Review of one or more of the following, dated within three months, together with a written representation that all liabilities necessary to determine net worth have been disclosed. For assets: bank statements, brokerage statements and other statements of securities holdings, certificates of deposit, tax assessments and appraiser reports issued by third parties and for liabilities, credit report from a nationwide agency.

cc. Obtaining a written confirmation from a registered broker-dealer, an SEC registered investment advisor, a licensed attorney, or a CPA that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months.

dd. A written certification verifying accredited investor status from existing accredited investors of the Issuer that have previously invested in a 506 offering with the same Issuer.

 

 

Rule 505 Rule 505 provides an exemption for offers and sales of securities totaling up to $5 million in any 12-month period. Under this exemption, you may sell to an unlimited number of “accredited investors” and up to 35 unaccredited investors. Purchasers must buy for investment only, and not for resale. The issued securities are restricted under Rule 144. Consequently, you must inform investors that they may not sell for at least a year without registering the transaction. You may not use general solicitation or advertising to sell the securities. Information requirements vary depending on whether the Company solicits any un-accredited investors. If a Company solicits even one unaccredited investors it must provide certain disclosures including audited financial statements prepared by a PCAOB qualified auditor. It is up to the Company to decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions. But you must give non-accredited investors disclosure documents that generally are the same as those used in registered offerings. If you provide information to accredited investors, you must make this information available to the non-accredited investors as well. You must also be available to answer questions by prospective purchasers. Regardless of whether a Company is soliciting only accredited investors or not, it is important to deliver a complete and thorough disclosure documents to protect the Company against future claims of a violation of the anti-fraud provisions of the Securities Act. Federal law does not pre-empt state law for a Rule 505 offering. Accordingly, in addition to meeting the requirements for Rule 505, a Company must be careful to meet all relevant state law requirements, which can vary greatly. As a result of this, Rule 505 is rarely used. Rule 504 Rule 504 provides an exemption for the offer and sale of up to $1,000,000 of securities in a 12-month period. A company may use this exemption so long as it is not a blank check or development stage company and is not subject to Exchange Act reporting requirements. Rule 504 is basically a state exemption, in that if an offering is under $1,000,000 and meets all the requirements of a state law exemption, it will generally meet the requirements of a Rule 504 exemption. Moreover, investors will receive freely tradable securities under the following circumstances:

 

 

 You register the offering exclusively in one or more states that require a publicly filed registration statement and delivery of a disclosure document to investors;

You register and sell in a state that requires registration and disclosure delivery and also sell in a state without those requirements, so long as you deliver the disclosure documents mandated by the state in which you registered to all purchasers; or,

You sell exclusively according to state law exemptions that permit general solicitation and advertising, so long as you sell only to “accredited investors.”

 

 

Even if you make a private sale where there are no specific disclosure delivery requirements, you should take care to provide sufficient information to investors to avoid violating the antifraud provisions of the securities laws. This means that any information you provide to investors must be free from false or misleading statements. Similarly, you should not exclude any information if the omission makes what you do provide investors false or misleading. 

 

 

Intrastate Offering Exemption Section 3(a)(11) of the Securities Act and Rule 147 promulgated thereunder, is generally known as the “intrastate offering exemption.” This exemption is intended to facilitate the financing of local business operations. The preliminary notes to Rule 147 explain: “Section 5 of the Act requires that all securities offered by the use of the mails or by any means or instruments of transportation or communication in interstate commerce be registered with the Commission. Congress, however, provided certain exemptions in the Act from such registration provisions where there was no practical need for registration or where the benefits of registration were too remote. Among those exemptions is that provided by Section 3(a)(11) of the Act for transactions in “any security which is a part of an issue offered and sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within…such State or Territory.” To qualify for the intrastate offering exemption, a company must:

 

 

 be incorporated in the state where it is offering the securities;

 carry out a significant amount of its business in that state; and

 make offers and sales only to residents of that state.

 

 

There is no fixed limit on the size of the offering or the number of purchasers. Your company must determine the residence of each purchaser. If any of the securities are offered or sold to even one out-of-state person, the exemption may be lost, causing a violation of the registration requirements of the Securities Act. This provision can be problematic for Company’s conducting consecutive offerings or seeking investment capital through the use of more than one type of exempt financing. A Company must be careful that a consecutive offering, or separate form of financing, is not integrated with the Intrastate Offering, thus destroying the exemption. There is no specific prohibition against general solicitation and advertising and in fact, is the exemption that many states are relying upon in enacting state specific crowdfunding statutes. Although the securities sold are not restricted under Rule 144, for a period of nine months, re-sales may only be made to a person or entity that is resident of the state of the offering. Many states allow some form of advertising or solicitation for intrastate offerings. 

 

 

Current Regulation A Current Regulation A, promulgated under Section 3(b) of the Securities Act of 1933, is an exemption for public offerings not exceeding $5 million in any 12-month period. Although it is technically an exempt offering, practitioners really refer to it as a mini registration. If you choose to rely on this exemption, your company must file an offering statement, consisting of a notification, offering circular, and exhibits, with the SEC for review. Regulation A offerings share many characteristics with registered offerings. For example, you must provide purchasers with an offering circular that is similar in content to a prospectus. Like registered offerings, the securities can be offered publicly and are not “restricted,” meaning they are freely tradeable in the secondary market after the offering. The principal advantages of Regulation A offerings, as opposed to full registration, are:

 

 

The financial statements are simpler and don’t need to be audited;

 There are no Exchange Act reporting obligations after the offering unless the company has more than $10 million in total assets and more than 2,000 shareholders;

 Companies may choose among three formats to prepare the offering circular, one of which is a simplified question-and-answer document; and

 You may “test the waters” to determine if there is adequate interest in your securities before going through the expense of filing with the SEC.

 

 

If you “test the waters,” you can use general solicitation and advertising prior to filing an offering statement with the SEC, giving you the advantage of determining whether there is enough market interest in your securities before you incur the full range of legal, accounting, and other costs associated with filing an offering statement. You may not, however, solicit or accept money until the SEC staff completes its review of the filed offering statement and you deliver prescribed offering materials to investors. 

 

 

Crowdfunding Exemption – Section 4(a)(6) Please see our crowdfunding page for a detailed discussion of this exciting new exemption and opportunity. 

 

 

California Limited Offering Exemption – Rule 1001 SEC Rule 1001 provides an exemption from the registration requirements of the Securities Act for offers and sales of securities, in amounts of up to $5 million, that satisfy the conditions of ¤25102(n) of the California Corporations Code. This California law exempts from California state law offerings made by California companies to “qualified purchasers” whose characteristics are similar to, but not the same as, accredited investors under Regulation D. This exemption allows some methods of general solicitation prior to sales. Exemption for Sales of Securities through Employee Benefit Plans – Rule 701 The SEC’s Rule 701 exempts sales of securities if made to compensate employees. This exemption is available only to companies that are not subject to Exchange Act reporting requirements. You can sell up to $1,000,000 of securities under this exemption, no matter how small your company is. You can sell even more if you satisfy certain formulas based on your company’s assets or on the number of its outstanding securities. If you sell more than $5 million in securities in a 12-month period, you need to provide limited disclosure documents to your employees. Employees receive “restricted securities” in these transactions and may not freely offer or sell them to the public. However, the restriction on securities issued under Rule 701 is lifted three months after a company goes public and becomes subject to the reporting requirement of the Securities Exchange Act.

 

 

Inquiries of a technical nature are always encouraged. Contact us now.

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Laura Anthony, Founding Partner

Contact ALG Founder

Anthony LG LLC Corporate and Securities Law Firm

Going Public vs. Reverse Merger

Going Public Via Reverse Merger

A reverse merger transaction is one in which a private operating entity merges with a public shell company, resulting in the private operating company becoming public. Generally, the shareholders of the private operating company will exchange their ownership in the private company for a majority stake in the public shell company. A “shell company” is an entity that has no or nominal operations and no assets or assets consisting solely of cash and cash equivalents. A reverse merger is an alternative method of going public (as opposed to an IPO, DPO or private placement followed by the registration process).

A reverse merger is often structured as a reverse triangular merger. In that case, the public shell forms a new subsidiary which new subsidiary merges with the private operating business. At the closing, the private company shareholders still exchange their ownership for shares in the public company and the private operating business becomes a wholly owned subsidiary of the public company. The primary benefit of the reverse triangular merger is the ease of shareholder consents. That is because the sole shareholder of the acquiring entity is the public company. The directors of the public company can approve the transaction on behalf of the acquiring subsidiary, avoiding the necessity of meeting the proxy requirements of the Securities Exchange Act of 1934.

The advantages of a reverse merger revolve around time. A reverse merger transaction can be completed very quickly and efficiently. The disadvantages of a reverse merger generally revolve around undisclosed prior issues or liabilities with the public shell, including issues that could affect DTC eligibility. This primary disadvantage can be addressed by hiring competent securities counsel to assist with the due diligence process. Another disadvantage involves cost; a reverse merger transaction, although substantially quicker than an IPO, can cost substantially more. In addition to legal and accounting fees, a private entity must purchase the public shell itself.

Like any transaction involving the sale of securities, the issuance of securities to the private company shareholders must either be registered under Section 5 of the Securities Act or by subject to an available exemption from registration. Generally, shell companies rely on Section 4(2) or Rule 506 of Regulation D under the Securities Act for such exemption.

A reverse merger is a going public transaction but not a capital raising transaction.  Generally companies completing a reverse merger simultaneously complete a private placement transaction for fund raising.

Your Going Public Transaction with Us

In an initial public offering (IPO), a company goes public directly by filing an S-1 registration statement for the public sale of its stock. That sale of stock can be by the company using an underwriter, which is known as an IPO. Alternatively, many issuers are choosing to self-underwrite their public offerings, commonly referred to as a Direct Public Offering (DPO). But of course, the process is highly regulated and without experienced legal counsel can be difficult, expensive and time-consuming.

Pursuant to Section 5 of the Securities Act of 1933, as amended (“Securities Act”), it is unlawful to “offer” or “sell” securities without a valid effective registration statement, unless an exemption is available. Companies desiring to offer and sell securities to the public must file with the SEC and provide prospective investors all material information concerning the company and the securities offered. The Securities Act sets forth in-depth rules on what constitutes material information, and on what forms and in what format that material information must be disclosed.

Rule 404(a) of the Securities Act sets forth the basic requirements for a registration statement. Rule 404(a) reads in part:

“A registration statement shall consist of the facing sheet of the applicable form; a prospectus containing the information called for by Part 1 of such form; the information, list of exhibits, undertakings and signatures required to be set forth in Part II of such form; financial statements and schedules; exhibits; any other information or documents filed as part of the registration statement; and all documents or information incorporated by reference in the foregoing.”

Over the years the SEC has created and eliminated various registration forms. Currently all domestic issuers must use either form S-1 or S-3. Form S-3 is limited to larger filers with a minimum of $75 million in non-affiliate public float, among other requirements. All other issuers must use form S-1.

S1 Regulations

There are four primary regulations governing the preparation and filing of Form S-1:

(i) Regulation C – contains the general requirements for preparing and filing the Form S-1. Included within Regulation C are regulations and procedures related to (a) the treatment of confidential information; (b) amending a registration statement prior to effectiveness; (c) procedures to file a post-effective amendment; and (d) the “Plain English” rule

(ii) Regulation S-T – requires that all registration statements, exhibits and documents be electronically filed through the SEC’s EDGAR system and must include interactive data using the XBRL process.

(iv) Regulation S-K – sets forth, in detail, all the disclosure requirements for all the sections of the S-1. Regulation S-K is the who, what, where, when and how requirements to complete the S-1.

(v) Regulation S-X – sets forth the requirements with respect to the form and content of financial statements to be filed with the SEC. Regulation S-X includes general rules applicable to the preparation of all financial statements and specific rules pertaining to particular industries and types of businesses.

Both the Securities Act of 1933, as amended (“Securities Act”) and the Securities Exchange Act of 1934, as amended (“Exchange Act”) provide remedies to investors in the IPO and DPO process. The basic premise of such liability is that either an investor was not given an opportunity to review investment disclosure documents prior to making the investment, or such disclosure documents contained inaccurate information or failed to contain material information. The bottom line is that if an officer or director signs a registration statement which is filed with the SEC and which contains misstatements or fails to contain material information, they may be subject to liability on two fronts – from the SEC in an enforcement proceeding, and from individuals and entities in a private civil claim.

Private Placement

Private Placement Followed by Registration of Securities

A public company, by definition, has public shareholders. Reverse mergers, IPO’s and DPO’s all result in a public shareholder base. Another option for a company going public directly is to complete a private placement; selling shares to unaffiliated third parties and then filing an S-1 resale registration statement as to those shares. Each of these options results in an unaffiliated public shareholder base. Simply stated, all of these aforementioned processes result in a company going public.

The S-1 resale registration statement filed on behalf of selling shareholders contains substantially the same required information as an S-1 registration statement filed on behalf of the company itself.

The main benefit to a private company going public through the filing of an S-1 Registration Statement as opposed to a reverse merger is that the company does not have to be concerned about undisclosed, potential or contingent liabilities.  Moreover, the SEC rules relating to shell companies (such as Rule 144 and Rule 145) prevent the operating company’s shareholders from selling stock using the Rule 144 exemption for twelve months following the completion of the merger. Furthermore, companies completing a reverse merger may face reputational challenges.  Finally, if not completed correctly, the newly merged entity may face trading difficulties with either or both FINRA and DTC.

Listing on a National Exchange

Listing on a National Exchange

There are currently registered stock exchanges in the United States, however, the most common exchanges for small cap and middle market companies are the NYSE including the NYSE American and NASDAQ.  Both exchanges have quantitative and qualitative listing standards and ongoing corporate governance requirements for listed companies.  For a complete list of NYSE American listing requirements see my blog on the topic HERE and for a complete list of NASDAQ listing requirements see by blog HERE.  The attorneys at Anthony L.G. assist companies with the preparation for and application process to list on an exchange as well as compliance with ongoing listing requirements.

Finra and DTC

FINRA and DTC

For companies going public on the OTC Markets, following the effectiveness of the S-1 registration statement, the company will need to engage the services of a market maker to file a 15c2-11 application with FINRA to obtain permission to quote and trade the stock and to receive a trading symbol. FINRA is the self-regulatory body which overseas trading on the over-the-counter market. On the most basic level, FINRA issues trading symbols to company’s trading on the over-the-counter market (including the Pink Sheets, OTCQB and OTCQX).

The Depository Trust Company (DTC) provides the clearing and settlement services for all the electronic trading of securities in the United States. Over the past year, DTC eligibility has become a concern for many OTC issuers. The DTC has become active in reviewing the securities of issuers and requiring that an issuer be able to prove, to the DTC’s satisfaction, that all shares trading electronically are indeed legally entitled to do so. This includes shares that may have been issued in a predecessor company many years before and for which records may not be available.

Obtaining and maintaining eligibility is of the utmost importance for the smooth trading of an issuer’s float in the secondary market. Moreover, DTC eligibility is a prerequisite for OTC issuers’ shareholders to deposit securities with their brokers and have such securities be placed in street name.

Anthony L.G. stays current with all DTC issuer requirements to assist clients in avoiding unnecessary disruptions to their stocks trading activity and to remove DTC chills and locks whenever possible.

OTCQX Listing Requirements

The OTCQX listing requirements necessitates that a company meets the following:
  • A transfer agent that participates in the Transfer Agent Verified Shares Program.
  • Comply with SEC Reporting (Exchange Act reporting standard or Regulation A), International Reporting, Bank Reporting, or OTC Alternative Reporting Guidelines.
  • Audited financial statements that comply with US GAAP (for International and Alternative Reporting Companies listed on a Qualified Foreign Exchange, a valid auditing opinion) with a Balance Sheet dated within 15 months by a PCAOB auditor.
  • Have proprietary quotes by at least one Market Maker in OTC Link ATS (companies filing Form 211 shall have 3 business days to meet this requirement)
  • Have a minimum bid price of $0.25 per share and $10 million market capitalization on each day for the first 30 consecutive calendar days preceding Application Day. (exemptions for companies submitting Form 211 applications)
  • Have on-going operations and not be a shell company.
  • Not going through bankruptcy or reorganization.
  • Have at least 50 round-lot beneficial shareholders (each owning at least 100 shares).
  • Have a freely traded Public Float of 10% or more of total outstanding shares.
  • Obtain an OTCQX Sponsor
  • For International Reporting, comply with OTCQX Rules and publish required disclosures in English, as specified in 12g3-2(b).
  • Publish Annual reports, call reports and other disclosures required by bank regulators.

Corporate Governance requirements:

  • Have a board of directors with 2 independent directors
  • Have an audit committee with the majority being independent director
  • For further information view our page on OTCQX Requirements and application process.

    NASDAQ Capital Market Listing Requirements

    5505. Initial Listing of Primary Equity Securities

    A Company applying to list its Primary Equity Security on the Capital Market must meet all of the requirements set forth in Rule 5505(a) and at least one of the Standards in Rule 5505(b).

    (a) Initial Listing Requirements for Primary Equity Securities:

    (1) (A) Minimum bid price of $4 per share; or

    (B) Minimum closing price of $3 per share, if the Company meets the requirements of the Equity or Net Income Standards under Rules 5505(b)(1) or (b)(3), or of $2 per share, if the Company meets the requirements of the Market Value of Listed Securities Standard under Rule 5505(b)(2), provided that in either case the Company must also demonstrate that it has net tangible assets (i.e., total assets less intangible assets and liabilities) in excess of $2 million, if the issuer has been in continuous operation for at least three years; or net tangible assets in excess of $5 million, if the issuer has been in continuous operation for less than three years; or average revenue of at least $6 million for the last three years. A security must meet the applicable closing price requirement for at least five consecutive business days prior to approval.

    For purposes of this paragraph (B), net tangible assets or average revenues must be demonstrated on the Company’s most recently filed audited financial statements filed with, and satisfying the requirements of, the Commission or Other Regulatory Authority, and which are dated less than 15 months prior to the date of listing.

    (2) At least 1,000,000 Unrestricted Publicly Held Shares;

    (3) (i) At least 300 Round Lot Holders; and (ii) at least 50% of such Round Lot Holders must each hold Unrestricted Securities with a Market Value of at least $2,500; provided that (ii) shall not apply to a Company whose business plan is to complete one or more acquisitions, as described in IM-5101-2;

    (4) At least three registered and active Market Makers;

    (5) If the security is trading in the U.S. over-the-counter as of the date of application, such security must have a minimum average daily trading volume of 2,000 shares over the 30 trading day period prior to listing (including trading volume of the underlying security on the primary market with respect to an ADR), with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million; and

    (6) In the case of ADRs, at least 400,000 issued.

    (b) Initial Listing Standards for Primary Equity Securities:

    (1) Equity Standard

    (A) Stockholders’ equity of at least $5 million;

    (B) Market Value of Unrestricted Publicly Held Shares of at least $15 million; and

    (C) Two year operating history.

    (2) Market Value of Listed Securities Standard

    (A) Market Value of Listed Securities of at least $50 million (current publicly traded Companies must meet this requirement and the price requirement for 90 consecutive trading days prior to applying for listing if qualifying to list only under the Market Value of Listed Securities Standard);

    (B) Stockholders’ equity of at least $4 million; and

    (C) Market Value of Unrestricted Publicly Held Shares of at least $15 million.

    (3) Net Income Standard

    (A) Net income from continuing operations of $750,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years;

    (B) Stockholders’ equity of at least $4 million; and

    (C) Market Value of Unrestricted Publicly Held Shares of at least $5 million.

    NYSE LISTING REQUIREMENTS

    Have at Least 400 Shareholders

    To qualify for NYSE listing, a company must have at least 400 shareholders who own more than 100 shares of stock, have at least 1.1 million shares of publicly traded stock and have a market value of public shares of at least $40 million. The stock price must be at least $4 a share. Initial public offerings, spin-offs from existing companies or affiliates need a market value of at least $100 million.

    Meet the Basic Earnings Standard

    In order to order to get listed on the NYSE, a company also must be profitable and it has to meet one of two basic earnings standards. The first is aggregate pre-tax income of $10 million for the previous three years, with at least $2 million in each of the two most recent years. An alternate is $200 million in global market capitalization. In each case, the company still has to meet the shareholding threshold.

    Global Considerations

    The NYSE has stricter standards for worldwide trading. The $4 share price and $100 million market value apply, but a company must have at least 2.5 million shares outstanding and 5,000 public shareholders. In the case of a non-American company whose home market does not have “registered” shareholders, the NYSE requires that a member brokerage firm attest to the depth of market and liquidity of the company’s stock.

    File an Application

    Assuming as company meets the required standard, getting listed on the NYSE is simply a case of filing an application with an agreement to meet NYSE guidelines and requirements. That also must include the articles of incorporation, company by-laws and resolutions, and information on the organization, including contact details for key executives and affirmation that none has a felony conviction. NYSE also requires a letter from security underwriters that the company meets listing standards.

    NYSE Can Reject Unsuitable Companies

    The NYSE has broad discretion in listing companies and will list only shares it deems suitable for the market’s auction trading process, in which buy and sell orders are matched on the exchange floor. It can apply more stringent criteria, even if a company meets the basic securities and financial criteria. A company that is accepted for listing can expect trading of shares to start in four to six weeks.

    OTCQB Listing Requirements

    Eligibility Standards

    To be considered for admission to OTCQB, a Company shall meet all the following conditions:

    1) Audited Financials. Audited annual financial statements must be prepared in accordance with U.S. GAAP or, for International Reporting Companies or Alternative Reporting Companies listed on a Qualified Foreign Exchange, IFRS or an IFRS equivalent

    2) Current Disclosure: Make current disclosure available pursuant to one of the qualified listed reporting standards: 

    3) Bid Price of $0.01. Have a primary class of securities with proprietary priced quotations published by a Market Maker in OTC Link ATS with a closing bid price of at least $0.01 a) on each of the 30 consecutive calendar days immediately preceding the Company’s application for OTCQB

    4) An exemption from Section 1.1(3) of these OTCQB Standards may be granted by OTC Markets Group in its sole and absolute discretion. Have at least 50 Beneficial Shareholders, each owning at least 100 shares.

    5) Have a freely traded Public Float of at least 10% of the total shares issued and outstanding of the class of security to be traded on OTCQB., exemption may be granted by OTC Markets Group in its sole and absolute discretion.

    6) Not be subject to any Bankruptcy or reorganization proceedings.

    7) Be duly organized, validly existing and in good standing under the laws of each jurisdiction in which the Company is organized or does business.

    8) Transfer Agent. A company incorporated in the U.S. or Canada must retain a transfer agent that participates in the Transfer Agent Verified Shares Program.

    Corporate Governance (Required for Alternative Reporting Standard Only).

    • Have a board of directors that includes at least two Independent Directors; and
    • Have an Audit Committee, a majority of the members of which are Independent Directors. 
    • At least two members of the Board of Directors and a majority of the members of the Audit Committee must satisfy the independence requirement within the later of 90 days after the Company begins trading on OTCQB or the time of the Company’s next shareholder meeting.

    Financial Reporting Requirements: a. SEC Reporting Companies must have filed all reports required to be filed on EDGAR. b. Regulation A Reporting Companies must have filed all reports required to be filed on EDGAR.

    OTC PINK Listing Requirements

    Requirements to use Form 211 | Going Public OTC Pink Sheets

    In general, a private company can go public if:

    • The private company has at least 25 non-affiliate shareholders who paid cash consideration for their shares at least 12 months prior to the Form 211 filing date;
    • The private company must have at least 1 million shares outstanding, of which at least 250,000 are free trading shares;
    • The private company must never have been a shell company; and
    • The private company has current public information available.

    NYSE ARCA Listing Requirements

    The NYSE ARCA caters to small, medium, and large cap companies, as well as Exchange-Traded Products (ETPs). The ETPs that the exchange supports includes: Exchange-Traded Funds (ETFs), Exchange-Traded Notes (ETNs), and Exchange Traded Vehicles (ETVs). They NYSE ARCA currently represents over 90% of all ETPs traded in the U.S.

    The listing standards for the NYSE ARCA are as follows:

    Basic Listing Standards

    • At least 500,000 publicly held shares and a market value of at least $3,000,000.
    • At least 800 public beneficial holders if the issuer has at least 500,000 and less than 1,000,000 shares publicly held, or a minimum of 400 public beneficial holders if the issuer has either:
      • At least 1,000,000 shares publicly held; or
      • At least 500,000 shares publicly held and average daily trading volume in excess of 2,000 shares for the six months preceding the date of application.
    • Net worth of at least $4,000,000.
    • Pre-tax income from continuing operations of at least $750,000 in the last fiscal year or two of the last three fiscal years.
    • The maintenance of at least $5 per share closing bid price for a majority of business days for the most recent six-month period prior to the date of application by the issuer. To meet this price requirement, the bid closing price must be at or above $5 per share at the time of application.

    Alternative Listing Standards

    • At least 1,000,000 publicly held shares and a market value of at least $15,000,000.
    • At least 400 public beneficial holders.
    • Net worth of at least $12,000,000.
    • The maintenance of at least $3 per share closing bid price for a majority of business days for the most recent six-month period prior to the date of application by the issuer. To meet this price requirement, the bid price must close at or above $3 per share at the time of application.
    • An operating history of at least three continuous years.

    NYSE American Listing Requirements

    Companies must meet minimum listing requirements that include a specific financial liquidity and corporate governance criteria. NYSE American also maintains the right to deny an application if they believe it is necessary to protect investors, even if all of the technical requirements have been met. Typically, the NYSE American would reject an application for the nature of the company’s business, regulatory history and future projections, and reputation of management. As one of the most prestigious exchanges to be listed on, the NYSE American affords its patron companies many opportunities not found elsewhere. To gain an initial listing, companies must meet one of the following standards: (variations for Standard 1, 2, 3 ,4a , 4b) Standard 1 :
    1. Pre-tax income of at least $750,000
    2. Market Value of Public Float of at least $3 Millions
    3. Stockholders Equity of $4Million
    4. Minimum Price of 3$
    Standard 2 :
      1. Market Value of Public Float of at least $15 Million
      2. Stockholders Equity of $4Million
      3. Minimum Price of 3$
      4. Operating History of 2 years
    Standard 3 :
      1. Market Cap of at least $50 Million
      2. Market Value of Public Float of $15 Million
      3. Stockholders Equity of $4 Million
      4. Minimum Price of 2$
    Standard 4 (a) (b) :
      1. Market Cap (a) $75 Million
      2. Total Assets and Total Revenue (b) of $75 Million
      3. Market Value (a/b) of $20 Million
      4. Minimum Price (a/b) of $3
    Companies are also required to meet one of the following standards: Public Sharelholder of  (option 1)800, (options 2)400,  (option 3) 400 Public Float of (option 1) 500,000, (options 2) 1,000,000 or (option 3) 500,000 or Daily Trading Volume 6 months prior (option 3 ) 2000 shares

    NASDAQ Global Select Listing Requirements

    Initial Listing Requirements for Primary Equity Securities

    For inclusion in the Global Select Market, a Company must meet all requirements in Rule 5315(e), all applicable requirements of Rules 5315(f)(1), 5315(f)(2) and 5315(f)(3) and all applicable requirements in the Listing Rules.

    However, if a Company is a closed end management investment company registered under the Investment Company Act of 1940, it must meet all requirements in Rule 5315(e), all applicable requirements in each of Rules 5315(f)(1) and 5315(f)(2), but not requirements of 5315(f)(3).

    (c) A closed end management investment company that is listed concurrently with other closed end management investment companies that have a common investment adviser or whose investment advisers are “affiliated persons” as defined in the Investment Company Act of 1940 (a “Fund Family”) shall be eligible if:

    (1) the total Market Value of Unrestricted Publicly Held Shares in such Fund Family is at least $220 million;

    (2) the average Market Value of Unrestricted Publicly Held Shares for all funds in the Fund Family is $50 million; and

    (3) each fund in the Fund Family has a Market Value of Unrestricted Publicly Held Shares of at least $35 million.

    (d) A business development company as defined in Section 2 of the Investment Company Act of 1940 must meet all requirements in Rule 5315(e), and all applicable requirements in each of Rules 5315(f)(1) and 5315(f)(2), but not the requirements in 5315(f)(3). In lieu of meeting Rule 5315(f)(3), a business development company must have a Market Value of Listed Securities of at least $80 million.

    (e) The Primary Equity Security shall meet all of the following:

    (1) If the Company is not listed on the NGM, a bid price of at least $4 per share;

    (2) At least 1,250,000 Unrestricted Publicly Held Shares;

    (3) Market Makers

    A Company that meets the requirements of the NGM Income Standard ( Rule 5405(b)(1)) or the NGM Equity Standard ( Rule 5405(b)(2)) shall have at least three registered and active Market Makers. Otherwise, a Company shall have at least four registered and active Market Makers;

    (4) If the security is trading in the U.S. over-the-counter market as of the date of application, such security must have a minimum average daily trading volume of 2,000 shares over the 30 trading day period prior to listing (including trading volume of the underlying security on the primary market with respect to an ADR), with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million; and

    (5) In the case of ADRs, at least 400,000 issued.

    (f)

    (1) Ownership Requirement

    The Primary Equity Security shall meet no less than one of the following:

    (A) At least 550 Total Holders and an average monthly trading volume over the prior 12 months of at least 1,100,000 shares per month; or

    (B) At least 2,200 Total Holders; or

    (C) (i) A minimum of 450 Round Lot Holders; and (ii) at least 50% of such Round Lot Holders must each hold Unrestricted Securities with a Market Value of at least $2,500; provided that (ii) shall not apply to a Company whose business plan is to complete one or more acquisitions, as described in IM-5101-2.

    (2) Market Value Requirement

    The Unrestricted Publicly Held Shares shall meet one of the following:

    (A) A Market Value of at least $110 million; or

    (B) A Market Value of at least $100 million, if the Company has stockholders’ equity of at least $110 million; or

    (C) A Market Value of at least $45 million in the case of: (i) a Company listing in connection with its initial public offering; and (ii) a Company that is affiliated with, or a spin-off from, another Company listed on the Global Select Market; or

    (D) A Market Value of at least $70 million in the case of a closed end management investment company registered under the Investment Company Act of 1940.

    (3) Valuation Requirement

    A Company, other than a closed end management investment company, shall meet the requirements of sub-paragraph (A), (B), (C), or (D) below:

    (A) (i) Aggregate income from continuing operations before income taxes of at least $11 million over the prior three fiscal years, (ii) positive income from continuing operations before income taxes in each of the prior three fiscal years, and (iii) at least $2.2 million income from continuing operations before income taxes in each of the two most recent fiscal years; or

    (B) (i) Aggregate cash flows of at least $27.5 million over the prior three fiscal years, (ii) positive cash flows in each of the prior three fiscal years, and (iii) average market capitalization of at least $550 million over the prior 12 months and total revenue of at least $110 million in the previous fiscal year; or

    (C) (i) Average market capitalization of at least $850 million over the prior 12 months, and (ii) total revenue of at least $90 million in the previous fiscal year; or

    (D) (i) Market capitalization of at least $160 million, (ii) total assets of at least $80 million, and (iii) stockholders’ equity of at least $55 million.

    NASDAQ Global Market Listing Requirements

    Initial Listing Requirements and Standards for Primary Equity Securities

    A Company applying to list its Primary Equity Security on the Global Market shall meet all of the requirements set forth in Rule 5405(a) and at least one of the Standards in Rule 5405(b).

    (a) Initial Listing Requirements for Primary Equity Securities:

    (1) Minimum bid price of at least $4 per share;

    (2) At least 1,100,000 Unrestricted Publicly Held Shares;

    (3) (i) At least 400 Round Lot Holders; and (ii) at least 50% of such Round Lot Holders must each hold Unrestricted Securities with a Market Value of at least $2,500; provided that (ii) shall not apply to a Company whose business plan is to complete one or more acquisitions, as described in IM-5101-2;

    (4) If the security is trading in the U.S. over-the-counter market as of the date of application, such security must have a minimum average daily trading volume of 2,000 shares over the 30 trading day period prior to listing (including trading volume of the underlying security on the primary market with respect to an ADR), with trading occurring on more than half of those 30 days, unless such security is listed on the Exchange in connection with a firm commitment underwritten public offering of at least $4 million; and

    (5) In the case of ADRs, at least 400,000 issued.

    (b) Initial Listing Standards for Primary Equity Securities:

    (1) Income Standard

    (A) Annual income from continuing operations before income taxes of at least $1,000,000 in the most recently completed fiscal year or in two of the three most recently completed fiscal years;

    (B) Stockholders’ equity of at least $15 million;

    (C) Market Value of Unrestricted Publicly Held Shares of at least $8 million; and

    (D) At least three registered and active Market Makers.

    (2) Equity Standard

    (A) Stockholders’ equity of at least $30 million;

    (B) Two-year operating history;

    (C) Market Value of Unrestricted Publicly Held Shares of at least $18 million; and

    (D) At least three registered and active Market Makers.

    (3) Market Value Standard

    A Company listed under this paragraph does not also need to be in compliance with the quantitative criteria for initial listing in the Rule 5500 series.

    (A) Market Value of Listed Securities of $75 million (current publicly traded Companies must meet this requirement and the $4 bid price requirement for 90 consecutive trading days prior to applying for listing if qualifying to list only under the Market Value Standard);

    (B) Market Value of Unrestricted Publicly Held Shares of at least $20 million; and

    (C) At least four registered and active Market Makers.

    (4) Total Assets/Total Revenue Standard

    A Company listed under this paragraph does not also need to be in compliance with the quantitative criteria for initial listing in the Rule 5500 series.

    (A) Total assets and total revenue of $75 million each for the most recently completed fiscal year or two of the three most recently completed fiscal years;

    (B) Market Value of Unrestricted Publicly Held Shares of at least $20 million; and

    (C) At least four registered and active Market Makers.