Keith Paul Bishop defines a “tweener” corporation as “not quite private and not quite publicly traded.” These are corporations that are not subject to reporting requirements of the Securities Exchange Act and, thus, entitle them to keep financial and other information confidential from competitors and others. Care must be taken to protect those abilities if such a corporation adopts an equity compensation plan for employees or others.
Since such corporations are not subject to the Exchange Act’s reporting requirements, they cannot register on securities offered under their compensation plans. Many “tweeners” rely on SEC Rule 701 to avoid registration. Rule 701 only imposes specific financial disclosure requirements if the aggregate sales price or amount of securities sold during any consecutive 12-month period exceeds $5 million. If a “tweener” company exceeds this limit it must provide financial statements on Part F/S of Form 1-A (Regulation A Offering Statement) and, thereby, is required to make public its financial information.
To avoid such disclosures “tweener” companies have two choices according to the SEC:
- They can require confidentiality agreements to protect information that could be used by their competitors; and/or
- Elect to stay below $5 million in sales during any consecutive 12-month period.
If you believe that your corporation falls within this “tweener” corporation category and, therefore, are a private issuer of stock, and want to adopt an equity compensation plan for the corporation’s employees or others, consult legal counsel to assure you posit the corporation so as to avoid disclosures that could help your competitors.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
