SEC Proposes Not to Count Options for 500-Shareholder Rule

On July 5, 2007, the SEC issued a proposal to exempt certain stock options and their underlying shares from the current rule that they be counted toward the 500-shareholder rule requiring companies to comply with securities laws if they have more than 500 shareholders and $10 million in assets. Options have to be granted subject to a written plan to employees, consultants, director, and advisors. They can be transferable only under limited circumstances, and option holders must receive disclosure information about the security as required under Rule 701 (a rule allowing certain equity sales to employees to be exempt from registration requirements). The SEC is also proposing to exempt companies that have registered their shares from having to register the options as well (the underlying shares would already be registered). They would not have to comply with the Rule 701 disclosure requirements because they are already meeting stricter public company disclosure rules.

Comments to these proposals can be submitted to the SEC on or before September 10, 2007. Details are here and here (both documents are PDFs).