Wednesday, September 19, 2012

What is Rule 15c2-11 and Why Should Micro Cap Companies Care?

SEC Rule 15c2-11 was designed to allow non-reporting public company's securities to be quoted on The Financial Industry Regulatory Authority ("FINRA") Over-the-Counter Bulletin Board ("OTCBB") by filing some simple disclosures.  These companies are usually considered penny stocks or micro cap companies.

Now, companies seeking to obtain a quote on the FINRA OTCBB must be required to file reports with the Securities and Exchange Commission ("SEC"). Under Section 15 of the Securities Exchange Act of 1934 (the "Act"), as amended, a company who has filed a registered offering with the SEC, such as an S-1 registration statement is required to file reports for one year. A company which files a Form 10 or Form 10-12G becomes a reporting company under Section 12g of the Act and must file reports. To be eligible for a quotation of its securities, the company's market maker must file a Form 211 with the FINRA, the company must have sufficient free trading stock in its public float to allow Rule 15c2-11.

The stated and un-stated listing requirements for the FINRA OTC-BB are as follows:
  • fully reporting with the U.S. Securities and Exchange Commission, 
  • minimum of 40 stockholders of record holding at least 100 shares each (note: this number is informal and has been moving up), 
  • must have a market maker submit 15c2-11 (Form 211) application to FINRA and agree to act as market maker for securities of company. 
If you need assistance in having a Form 211 filed with the FINRA so that your company can trade on the OTCBB, there are many service companies to help in that area.  See a copy of Form 211

So why should micro cap companies care about Rule 15c2-11 or Form 211??

Companies looking to raise capital or form an exit strategy for existing shareholders should consult with an industry professional about this rule and form.  This will allow shareholders to cash out positions in an otherwise private company to a third party.  The first step is to contact a market maker and see if the micro cap company meets the criteria to trade OTC.  To find a market maker, please visit OTCMarkets.com Market Maker List.

-The MicroCapCompany Team
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About the Author: Nicholas Coriano, JD is an Entrepreneur &  Business Consultant.  He has worked at Merrill Lynch, The New York Stock Exchange and is currently a partner at Cervitude Intelligent Relations.  Learn more about him here. He is the author of Rules For Entrepreneurship available now on Amazon.

About MicroCapCompany.COM: MicroCapCompany.COM (The Blog) is a blog focused on providing articles, news and information on the micro cap sector and start-ups.  The Blog is a free service offered by Cervitude™ Investor Relations (a micro cap investor relations firm) and offers compensated research reports and business plan writing services for micro cap companies and penny stocks.  If there is a particular topic you would like to see covered on The Blog, email CervitudeNetwork@gmail.com, If you would like to advertise on The Blog, click here

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