SEC Proposal Would Make It Easier to Create Internal Stock Markets

Few companies, most notably CH2MHill, operate internal stock markets to allow employees to buy and sell shares. There are a number of reasons for this, but one has always been regulatory cost and complexity. Companies needed to register the shares, provide extensive financial reporting, and comply with blue sky securities laws in each state in which they operate. On December 18, 2013, the Securities and Exchange Commission issued a proposal to make this process substantially easier.

The SEC's proposal would change Regulation A, an existing exemption from registration for small offerings of securities up to $5 million within a 12-month period and not more than $1.5 million for existing securities holders. This $1.5 million limit means many employee ownership companies have too many shares on offer to qualify for the exemption. The revised proposal would provide an option to increase that to $50 million overall and $15 million for existing security holders. It would still require significant reporting, generally comparable to those for public companies, but would exempt companies from blue sky compliance in each state in which they operate. Companies that want to offer less than $5 million overall per 12-month period and not more than $1.5 million for employee security holders would be able to have somewhat less onerous reporting requirements.

The comment period on the proposal ends February 18.