With the passing of the Jumpstart Our Business Startups (JOBS) Act, the thresholds for whether a company must be public changed dramatically. This is particularly true for smaller banks and bank holding companies.
The prior rule required registration with the SEC if the institution reached 500 or more holders of a single class of stock and had $10 million in assets. After the JOBS Act, the ownership number increased to 2,000 shareholders. Further, banks and bank holding companies may now deregister with fewer than 1,200 shareholders, a number previously set at 300.
So the race is on for many smaller banks and bank holding companies to go private and save the high costs associated with being a public company.
At first glance, it may appear obvious that going private is the best thing to do. However, this is not necessarily the case.
- Many investors prefer having regular and comprehensive disclosures about their investments. This is required for public companies, but not for private ones.
- Also, investors like liquidity in their stocks. However, stocks in private companies are harder to trade, if they can be traded at all.
- Merger prospects can also be reduced by going private because it is harder to use private company stock as currency in a deal.
For these reasons, the decision to go private should be considered carefully on a case-by-case basis.