DEFINITION of 'SEC Schedule 13E-3'

SEC Schedule 13-E-3 is a schedule that a publicly traded company or an affiliate must file with the Securities and Exchange Commission (SEC) when that company becomes "private." Becoming private means de-listing from a securities exchange. In this event, the number of shareholders in the company decreases to the point that the company is no longer required to file reports with the SEC like an annual 10-K or quarterly 10-Q, along with an 8-K for material changes outside of a regular reporting period. Qualifying events may include a merger, tender offer, a sale of assets, or a reverse stock split.

BREAKING DOWN 'SEC Schedule 13E-3'

A company must file Schedule 13E-3 in the event that it becomes private and has securities registered under Section 12 of the Securities Exchange Act of 1934. This act governs securities that have already been issued and the markets in which they trade, in contrast with the Securities Act of 1933, which governs new issues. The main goal of both acts is to prevent fraud. Under the 1934 act, the following activities are criminal:

  • Abusing discretionary authority and exercising discretion without authority
  • Churning, or trading excessively for the sake of making commissions
  • Insider trading, or trading on "material inside information"

Keeping all of the above points in mind, an individual or group of people may purchase a company's stock in order to take it private because it feels that the market is undervaluing the shares. When a firm goes private, its stock is no longer available for sale through open markets.

SEC Schedule 13E-3 and Going Private

Private equity firms will often purchase a struggling company, turn it into a private entity, reorganize its capital structure, and issue stocks once a profit can once again be realized.

Two methods that private equity firms or powerful individuals take companies private include a leveraged buyout (LBO) and management buyout (MBO). In an LBO, one company will acquire another using a significant amount of borrowed money, called leverage, to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. Leveraged buyouts allow companies to make larger acquisitions than they normally would as they don’t have to commit as much capital up front.

In a management buyout or MBO, a company’s management team purchases the assets and operations of the business they manage. This often appeals to professional managers because of the greater potential rewards from being owners of the business rather than employees.

  1. Securities And Exchange Commission ...

    The Securities and Exchange Commission (SEC) is a U.S. government ...
  2. Privately Owned

    Privately owned refers to businesses that have not offered public ...
  3. Management Buyout - MBO

    A management buyout (MBO) is a transaction where a company’s ...
  4. SEC Form S-2

    SEC Form S-2 is a form from the Securities and Exchange Commission ...
  5. SEC Form 18

    SEC form 18 is an SEC filing that is more commonly known as the ...
  6. SEC Form 1

    SEC Form 1 is an application for, or amendments to, registration ...
Related Articles
  1. Investing

    Using Public SEC Filings To Analyze Companies

    Reports from the Securities and Exchange Commission provide investors with an edge in determining the investment value of companies. Learn what to look for in these financial reports.
  2. Small Business

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
  3. Investing

    SEC Filings: Forms You Need To Know

    The forms companies are required to file provide a clear view of their histories and progress.
  4. Personal Finance

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  5. Investing

    Private Equity Management: Fees and Regulations

    Learn about the fees and regulations associated with private equity management, with a focus on the industry since Dodd-Frank was signed into law in 2010.
  6. Investing

    Methods used in valuing private companies

    There are a few methods for calculating the valuation of a private company. By using financial information from peer groups, we can estimate the valuation of a target firm.
  7. Taxes

    How A Company Files With The SEC

    Filing with the SEC is not as complicated as you might thing -- just be meticulous about following the steps.
  8. Investing

    SEC Employees Enjoy Same Hefty Investment Returns as Insider Traders They Prosecute

    SEC employees are getting huge investment returns just like the companies they investigate for insider trading.
  9. Insights

    The SEC: A Brief History Of Regulation

    The SEC has continued to make the market a safer place by learning from and adapting to new scandals and crises.
  10. Investing

    Why Public Companies Go Private

    Privatization can give management more time to make money for investors, but at what cost?
  1. How can I sell private company stock?

    In some instances, both private and public companies may issue shares to their own employees as part of a compensation program. ... Read Answer >>
  2. What are unregistered securities or stocks?

    Before securities, like stocks, bonds and notes, can be offered for sale to the public, they first must be registered with ... Read Answer >>
  3. If I reject the tender offer for acquisition of the stock that I own in a company ...

    Since the passing of the Sarbanes-Oxley Act, a significant number of public companies have chosen to go private. The reasons ... Read Answer >>
Trading Center