Private banks may be permitted to stay private

Privately-held banks should pay special attention to a bill currently under proposal in Congress. The bill is targeting the 500-shareholder rule, one of the key requirements for determining when a private company must begin filing 10-Qs and 10-Ks. It's a rule that has long marked the dividing line between private and public status for most private companies.

Under current law (part of the Securities Exchange Act of 1934), companies are subject to SEC reporting requirements after they pass the 500 shareholder limit. While bank holding companies file their 10-Qs and 10-Ks with the SEC, banks with more than 500 shareholders generally file with their primary banking regulator. The current law also requires them to include any employee who receives stock as compensation in the 500 shareholder limit.

Now the Private Company Flexibility and Growth Act (H.R. 2167) could amend the statute by raising the threshold rule to 1,000 persons. The bill would also exclude persons who receive stock as part of an employee compensation plan from counting towards the threshold number.

If the bill becomes law, it could mean more flexibility for private banks, allowing them to stay private longer and have more flexibility and control over their growth – at least for a time, until they too reach the 1,000 person limit.

Watch for breaking developments on this important legislation in early 2012. Read the entire House Bill H.R. 2167 in full. For more information about this topic, please contact John Keyser, national director, Financial Institutions Services, McGladrey & Pullen, LLP, 702.759.4046.