What Is SEC Form 25?

SEC Form 25 is the document a public company must file with the Securities and Exchange Commission (SEC) to delist its securities under Rule 12d2-2 of the Securities Exchange Act of 1934.

The company must issue a press release and post notice on its website of its intention to delist no fewer than 10 days before delisting becomes effective under Rule 12d2-2. The delisting will become effective 10 days after Form 25 has been filed with the SEC and most reporting obligations are suspended on that date. However, the actual termination of registration under Section 12(b) of the Securities Exchange Act does not occur until 90 days after the delisting takes effect.

Key Takeaways

  • SEC Form 25 is for firms that wish to delist from a stock exchange.
  • Compliance costs for SEC disclosure requirements cost businesses millions of dollars annually.
  • Going private is when a company liquidates its shares and delists from the exchange.
  • Going dark is when a company moves from a major exchange to the Pink Sheets.
  • The SEC major disclosure forms are 10-K for annual, 10-Q for quarterly, and 8-K for current reports.

Understanding SEC Form 25

Securities may be delisted from an exchange for various reasons. Bonds may have matured, been called, or redeemed by a company. A company might want to go private by paying cash for all or a substantial portion of its public shares, or perhaps its outstanding securities have been exchanged for cash or another security as part of a takeover. It might just want to voluntarily delist from a national securities exchange or inter-dealer quotation system, in order to suspend or reduce the company’s public reporting obligations under the Securities Exchange Act.

Compliance costs are burdensome for public companies with a market capitalization of less than $50 million and revenues under $100 million. Compliance costs for public company status can range anywhere from $1 million to $3 million annually. If a company’s stock price is tumbling, it can be difficult to find the capital to comply with SEC disclosure requirements. Naturally, many small companies delist during business downturns.

It's important to consider the implications of staying public when making the tough choice of whether to go dark or go private.

Special Considerations

The lack of a stock exchange listing may substantially diminish the benefits of remaining a public company. With that in mind, some companies prefer to go dark rather than go private. Going private is the act of completely delisting from a stock exchange. Going private is a lengthy process and, in addition to the information listed above, it also involves extensive and detailed disclosure filings under SEC Rule 13e-3. 

The transactions for going private are typically handled by controlling shareholders or a third party that acquired the company. On the other hand, a company can go dark without a shareholder vote, fairness opinion, any cashout payment or lengthy rule process. The company’s shares will also generally continue trading in the Pink Sheets, without subjecting the company to any reporting requirements.

SEC Form 25 Requirements

The Securities Exchange Act of 1934 was adopted amid the Great Depression and specifies certain requirements of public companies. It has been updated many times since then. Current requirements are to file an annual report via Form 10-K, file quarterly reports via Form 10-Q, and file other current reports on Form 8-K. 

Form 8-K is to be used for any type of major event that shareholders are supposed to know about. Some examples are bankruptcy, completion of acquisition or disposition of assets, or entry into a material definitive agreement.

Companies that do not want to engage in an initial public offering (IPO) can still be subject to the Securities Exchange Act if they have more than $10 million in assets that are held by upwards of 2,000 investors, or 500 investors who are not accredited. An example could be companies that are private but give shares to employees. The law exists to provide investors a tool to scrutinize companies and regulators to ensure transparency.