Effective Sept. 26, 2018, the Securities and Exchange Commission approved amendments to Nasdaq’s shareholder approval rule regarding issuances of 20% or more of an issuer’s outstanding common stock or voting power in a private offering. The amendments are intended to update Nasdaq’s shareholder approval rules from their 1990 adoption and enhance the ability for capital formation without sacrificing investor protections. In short, the amendments eliminate book value as the minimum price for certain permitted offerings, and modify the market value measure in the rule to use the lower of the closing price or five-day average closing price, instead of the closing bid price.
The “20% rule,” as it is commonly known, requires Nasdaq and NYSE-listed companies in certain situations to receive shareholder approval before they can issue 20% or more of their outstanding common stock or voting power in a private offering. Nasdaq and the NYSE also require shareholder approval in connection with the issuance of securities that will result in a change of control, certain acquisition-related issuances, and issuances of securities involving equity compensation. Nasdaq is not amending these other shareholder approval provisions.
For a summary of changes to Nasdaq’s 20% Rule, click here.