500 Shareholder Threshold

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DEFINITION

Legislation that provides additional standards to Section 12(g) of the Exchange Act to provide adequate disclosure of private companies. The 500 shareholder threshold forces companies that have more than 499 investors to divulge information about their financial performance. Although the company may still remain private, it must file similar documents to those of public companies. If the number of investors falls back below 500, then the disclosures can be omitted.

INVESTOPEDIA EXPLAINS

The 500 shareholder threshold was introduced to address complaints of fraudulent activity in the over-the-counter market. Since firms with fewer than the threshold number of investors were not required to disclose their financial information, outside buyers were not able to make fully informed decisions regarding their investments. The Exchange Act mandates that investors in over-the-counter securities be provided with the equivalent information as those trading stocks on the major exchanges.


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