We learned today that the SEC has issued a ruling that will allow Facebook to take on more than 500 investors. 500 is generally the magic number that the SEC keys on when evaluating a company. Keep in mind that Facebook is still privately held but is surpassing it’s rival MySpace which is now publicly held component of News Corp.
For those of you who are new to my blog I should probably state for the record that I am all-involved with the Facebook project and have been for about the last year or so, both from a developmental standpoint as well as being a committed user of the social network and open developers api / facebook connect.
Techcrunch: When most private companies reach 500 shareholders, they trigger an SEC rule which effectively treats them like a public company and requires them to some of the same reporting requirements. Google ran into this issue just before it went public. Now Facebook is quickly reaching that same threshold as it continues to hire and allows employees to sell shares to outside investors.
But in a letter dated October 13, 2008 (embedded below), Facebookâs lawyers argue that rule should not apply to Facebook because most of the shareholders are employees. The SEC granted the exemption.
So Facebook can keep issuing both restricted stock and options to new employees without fear of triggering the (costly) reporting requirements. As long as most of those shares stay inside Facebook, the company should be all right. But if enough employees take advantage of its program allowing them to sell shares to outsiders, and the number of outside investors grows beyond a handful or a few dozen, the SEC might want to revisit this decision.
SEC Gives Facebook The Greenlight To Go Beyond 500 Shareholders Without Going Public
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