One of the most common SEC filings that publicly traded companies make is Form 10, which is a type of registration statement companies must file in order to be classified as a reporting company under the Exchange Act. There are several scenarios in which a company might choose to do this, such as restructuring, selling off a subdivision or registering a class of securities for trading purposes. From a compliance point of view, Form 10 requires companies to disclose key pieces of information for reasons of investor protection and transparency. Knowing this background information, let's look deeper at the process for filing the SEC Form 10 and reveal tips and best practices to streamline the process.
When and Why Companies File SEC Form 10
The SEC requires a company to file SEC Form 10 when it has more than $10 million in total assets and more than 500 shareholders. A company with fewer shareholders or assets may voluntarily make this SEC filing, but it is not required.
Given that one purpose of this form is to register securities, you may be wondering how the SEC Form 10 is different from other required financial statements, such as Form S-1.
Form S-1, also known as the IPO registration statement, is required when taking a company public via the IPO process. Typically, companies choose an S-1 filing when the overall goal is to raise capital and expand operations through taking a company public.
Form 10 is used by companies at all stages of business development, not just the startup phase. The SEC Form 10 gathers important information about the types of securities being offered, the finances and growth potential for the business and corporate governance, among other things. Companies must also provide supporting documentation to the SEC when they submit Form 10.
The main point to keep in mind is that the information contained in Form 10 gives investors an accurate, up-to-date snapshot of the company offering securities so they can make informed decisions about the investment opportunity.
SEC Form 10 Key Components & Filing Requirements
Form 10 is one of several forms that must be filed before a company can register securities for trading. However, it's insufficient on its own. In other words, companies are also required to make other types of SEC filings in order to comply with regulations. We'll examine some of these other required filings momentarily; for now, let's look at the main components of Form 10.
What Is Required on Form 10?
Required information includes:
- Business description, risks and strategy
- Financial statements
- Management’s Discussion and Analysis (MD&A)
- Corporate governance information, including management and executive compensation
- Current legal proceedings and potential risk factors
There is no specific deadline for this form.
Form 10 filing instructions state that the information should be provided "reasonably close" to the time a company files its registration statement. However, other SEC forms do have firm deadlines that are important to keep in mind to avoid penalties.
Best Practices for Preparing and Filing SEC Form 10
Form 10 instructions specify that a company must complete the required paperwork, file 5 copies with the SEC and also file supporting documentation, including their registration statement, financial statements and all relevant exhibits.
As you might imagine, this is time-consuming! Start early and seek counsel from experienced financial advisors and auditors. These professionals can make sure you understand and are prepared to comply with all SEC requirements. They can help gather and validate documentation.
This is also the time to consider technological resources that can streamline the process, which is addressed at length below.
Compliance, Penalties & Post-Filing Obligations
An internal review or audit is essential for checking the accuracy of information, preparing and verifying financial reports. Auditing can identify any discrepancies or errors in a timely manner, so things can be rectified before filing. When this happens, there is less chance of accidental errors in filing.
Another useful tool for compliance with SEC filings is maintaining a calendar that tracks any hard deadlines associated with different required forms.
While Form 10 has no firm deadline and may be voluntary for some filers, other forms have strict deadlines. When those are not met, the company could be penalized or required to pay a fine.
Once a company files their Form 10, other forms then become required. This includes the annual report (Form 10-K), the quarterly report (Form 10-Q) and form 8-K used to report material events.
A place to start is by familiarizing yourself with these forms via the SEC's website, understanding what type of data will be reported on the form and adding filing deadlines to the calendar. Remember, it becomes a post-filing obligation to make these timely filings after the Form 10 is filed.
Once all the necessary information is gathered and a draft of the form is prepared, have a trusted internal team review the draft filing.
Detail orientation is key; any omissions or errors can result in delays. Starting early gives a cushion of time in which gaps can be corrected and errors fixed.
Technology’s Role in Streamlining the SEC Form 10 Process
Preparing to file a Form 10 for the first time is a milestone in company operations. It is also a major undertaking that requires careful planning in advance.
Many companies rely on a virtual data room provider when preparing to file their SEC Form 10.
A virtual data room is a secure cloud-based platform that allows different parties to view, mark up and collaborate on documentation, perform due diligence and conduct a robust internal review or audit before filing.
Virtual data rooms run on the cloud, supporting collaboration from anywhere. This ensures that professionals located elsewhere, including legal and financial experts, can weigh in on the filing as it is prepared.
Virtual data rooms often have advanced features, including AI-driven document review that is trained to flag mistakes before filing, data extraction tools to simplify the filing process and visualization tools that offer a new look at the data contained within the filing. These solutions also integrate directly with financial reporting software so you can import the data you need directly from the source, further reducing the chance of errors.
Corporate Governance and SEC Form 10
SEC Form 10 plays an important role in building trust and accountability between companies, investors and regulators.
The Securities Exchange Act of 1934 requires Form 10 to be filed for the purposes of investor transparency. When a company provides this level of operational and financial information up front, it offers investors a sufficient glimpse into its business motives, operations and financial health. This can help to build trust with investors. When this information is required of all companies selling securities, it improves the transparency of the markets as a whole.
From a corporate governance standpoint, forms like these are a way to hold business accountable to a common standard and avoid problems. Simply put, when companies disclose their operations, finances, health and governance practices, stakeholders know what's going on and why — whether the portrait the numbers paint is favorable or unfavorable.
Are you planning to file a Form 10? Be proactive and start planning now to avoid unwanted delays in the registration process. Let DFIN's interactive SEC filing deadlines calendar help you stay organized. Then, discover how our SEC filing software and virtual data room support companies through the filing process with leading collaborative and security features included.
