SEC’s No-Action Letter: Good News for Pre-IPO Companies

February 20th, 2012
Tech IPO

The SEC’s Division of Corporation Finance, “Corp Fin”, granted this no-action letter  regarding the use of restricted stock units for employees at pre-IPO companies under certain conditions without the company needing to register the securities under Section 12(g) of the ’34 Act. The letter provides comfort that without registration, and without limitation as to numbers of shares or of participants, companies may issue non-transferable restricted stock units to executives that would vest, and could be cashed out, in a US IPO or a sale of the company. The structure that the SEC Staff looked at involved units that remain with the employee even if employment were to terminate, and that could nonetheless vest upon a later liquidity event. This will help address the “Google problem” of a company being forced to report under the 1934 Act solely because of the number of employees who received pre-IPO equity awards.