What Is SEC Form 25?
Once companies register securities on the public exchanges, whether voluntarily or due to Section 12(g) of the Securities Exchange Act of 1934, they must meet regular requirements to keep their securities available on those exchanges. Over time, business administrators may decide that it is not in the company’s interest to maintain the listing. In this case, they could request that their securities be delisted and deregistered from centralized exchanges.
Companies delist securities for different reasons, many of which involve financial difficulties. Corporations may also choose to delist as part of taking a company private or in advance of a major change in the running of the company. The first step of this process involves filing SEC Form 25, which notifies the SEC that the company plans to delist their securities and cancel the registration statement.
Form 25 is an important part of the management of securities for a public company. It decreases the paperwork that companies must file with the SEC as part of Section 12 of the Securities Act. It also signals to potential investors that the business may be planning to make a significant change, ranging from strategic mergers to bankruptcy or dissolution. With an understanding of the requirements and effects of filing Form 25, companies can determine how best to handle their future financial plans.
When and Why Companies File SEC Form 25
There are several reasons that companies might choose to file SEC Form 25. If the business is looking to go private or otherwise remove their securities from sale and trading on a national securities exchange, administrators will start by filing the form. They may aim to achieve different ends, such as M&A deals, corporate restructuring, bankruptcy proceedings, or minimizing conflicts of interest under the Investment Company Act of 1940. Companies sometimes cancel their Form S-3 registration as a way of cutting costs or reducing compliance requirements, such as maintaining a minimum stock price when values are falling uncontrollably.
Sometimes the SEC makes the decision to delist securities from a centralized exchange. Companies that wish to maintain public securities must submit an annual report, providing details about their financial statements and other factors that affect stock value and investor interest. A failure to comply with these regulations can lead to the SEC delisting the securities until the organization provides the necessary information. Companies that know they are not able to meet the requirements may opt to file Form 25 to avoid mandatory delisting.
Going Private vs. Going Dark
Companies that choose to go through a voluntary process to delist or deregister may take a couple of different routes to achieve it, both requiring the filing of Form 25. These routes are commonly referred to as “going private” or “going dark.” In order to go private, shares must be consolidated into the hands of very few, usually through buybacks. By the end of the process, the company or a third-party acquirer controls the shares, allowing it to delist, merge or make other strategic decisions. The process may require extensive documentation and filings.
Going dark is a different process. In this case, the company decides not to participate in a centralized stock exchange like the NYSE, opting instead to trade over-the-counter or “pink sheets” stocks. This approach often requires less work and persuasion of shareholders, while lowering the reporting requirements and maintaining some access to liquidity.
Form 25 Filing Process and Timeline
In order to file Form 25, companies must use the same system that they rely on for their other SEC filings — EDGAR Next. Once the paperwork is received through the EDGAR system, the delisting will become effective 10 days after the filing. A full deregistration does not happen until 90 days after the filing, allowing time for the company to withdraw its request or make an amendment, or for others to object to the deregistration.
Companies that choose to file Form 25 to decrease their reporting obligations may also need to file additional reports, such as Form 15 or Form 12b-25. Form 15 targets companies with fewer than 300 shareholders that need to delist for some reason under the guidelines of Rule 12h-3. In many cases, they are at risk for involuntary delisting by the SEC due to noncompliance. Form 15 notifies the SEC that the business is not only seeking to delist and deregister but also that they will not be meeting future reporting requirements. Businesses that wish to fulfill their existing obligations should follow Rule 12b-25 if they need to make a late filing.
Form 25 Reporting Requirements
As part of a company’s public exit strategy, administrators must provide certain details to the SEC. These details include the exact name and address of the issuer, the description of the class of securities, the exchange where the securities are listed and a signature from an authorized representative. The form requires that the representative indicate the reason for delisting the security, including the following:
- The securities have been marked for redemption, maturity or retirement, with funds made available to shareholders.
- The entire class has been redeemed or paid out.
- The securities have been replaced without extending rights to current shareholders, generally resulting in an immediate cash payment.
- All rights to the security class have ended.
Accuracy in reporting is key to providing necessary transparency and protecting the rights of shareholders. Companies cannot delist securities as part of privatization without proving that they have resolved the claim that current shareholders control, usually through purchasing the shares as part of a merger, acquisition or stock buyback. Because Form 25 is public information, investors can gain information about the business’s intentions and make effective decisions for their investments.
Effects of Filing Form 25
Typically, filing Form 25 allows companies to decrease their filing obligation in exchange for reducing liquidity of their securities. As a rule, deregistration ends the requirement for form 10-K filings, 10-Qs and other reporting obligations on the SEC filing calendar.
The effect on shareholders depends on the long-term intentions of the company. If the organization seeks to privatize the company, it must buy back securities from other shareholders. If it simply aims to delist from public exchanges and continue trading on OTC markets, shareholders maintain certain rights and face additional hurdles.
Generally, companies must follow antifraud provisions of federal securities laws, but delisting decreases oversight. Lower reporting requirements means that shareholders may struggle to get accurate information about the company’s finances or plans. OTC trading is often more expensive as well, leading fewer investors to be interested in trading OTC shares.
Common Scenarios Involving SEC Form 25
Mergers and Acquisitions
Business A plans to acquire or merge with a public company. The public company cannot be acquired without consolidating ownership of the shares. The company being acquired files SEC Form 25 as part of delisting its securities, so that Business A can complete the process of acquisition or merger.
Management Buyouts
Business B is a public company that wants to privatize, with a goal of selling to private equity or simply regaining more control over company decisions. The company announces to existing shareholders that it is looking for shareholders who want to redeem their shares. If the shareholders engage, eventually management controls enough stock to override the votes of remaining shareholders. Business B files Form 25 once this process is complete.
Reverse Stock Splits
Business C is a public company with financial struggles that have led the stock price to drop below the minimum for public listings. In advance of an involuntary delisting, the company decides to do a reverse stock split, which combines stocks to increase the overall price. If Business C is unsuccessful in keeping the stock price above the minimum, it files Form 25 to delist the securities before it falls into noncompliance.
Compliance Failures
Business D has significant financial problems leading it to consider bankruptcy, restructuring or other measures. As a public company, Business D’s stocks are falling fast. The business believes it won’t be able to meet its SEC reporting obligations going forward. Business D files Form 25 to delist and deregister, or waits until the SEC triggers an automatic delisting process.
Ensure Form 25 Compliance
Compliance with all SEC requirements is key for public companies and organizations that meet requirements for SEC review. SEC Form 25 is a critical tool that businesses can use to notify shareholders and the public at large about their plans, specifically delisting and deregistering certain securities. The filing provides flexibility during significant upheaval in the organization, such as corporate restructuring or consolidation in M&A.
As an experienced SEC filing provider, we help companies provide accurate and timely filings, such as Form 25 or Form 20-F, while maintaining shareholder transparency and market integrity. DFIN ActiveDisclosure takes the stress out of routine and irregular filings, helping you stay compliant with SEC rules and changing filing requirements. To learn more about your options for managing your securities listings and other filing requirements, contact us for a demo.
