What Is SEC Form 25?

SEC Form 25 is the form issuers of listed securities have to file with the SEC when they are delisting their securities—under Rule 12d2-2 of the Securities Exchange Act of 1934. The issuer must give notice of its intention to file Form 25 and issue a press release announcing that intention ten days prior to filing the Form 25. The delisting will become effective 10 days after filing the Form 25 and most SEC reporting obligations are suspended on that date. However, the actual termination of registration under Section 12(b) does not occur until 90 days after the effectiveness of the delisting.

Key Takeaways

  • SEC Form 25 is for firms that wish to delist from the stock exchange.
  • Compliance costs for the Exchange Act 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 stays public but lists to a Pink Sheet exchange, not the NYSE or major exchanges.
  • The Exchange Act’s major 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 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 you it can be difficult to find the capital to deal with all the SEC disclosures. 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 the 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 or lengthy rule process. The company’s shares will also generally continue trading in the Pink Sheets, without subjecting the company to any Exchange Act reporting requirements.

SEC Form 25 Requirements

The Exchange Act of 1934 was made after the Great Depression and specifies certain requirements of companies in order to avoid another depression. It has of course been updated since that time. The 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 Exchange Act if they have more than $10 million in assets that are held by upwards of 2,000 investors that aren’t accredited. An example could be companies that are private but give shares to employees. The Exchange Act exists to provide investors a tool to scrutinize companies and regulators to ensure transparency.