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.


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.