However, this status is not permanent. To maintain legal rights and protections, a company must remain in good standing with the state by complying with ongoing filing and tax obligations.

What Is Good Standing?

Good standing is a status granted by the state when a company complies with its required obligations, including:

• Filing annual or periodic reports;
• Paying required franchise taxes and fees;
• Maintaining accurate and current business information on file.

Each state establishes its own rules and deadlines for maintaining good standing.

How to Maintain Good Standing

To remain in good standing, a company must:

• Submit required filings on time;
• Pay all applicable taxes and fees;
• Update business information as required by state law.

If good standing is lost, it can typically be reinstated by filing the appropriate documents and paying any outstanding fees or penalties.

Consequences of Losing Good Standing

Failure to maintain good standing can have serious legal and operational consequences. Over time, a company’s status may change from delinquent to suspended, and ultimately to administratively dissolved.

Key consequences include:

Loss of Legal Capacity

A corporation may still defend itself in court but may lose the ability to initiate lawsuits, including actions to enforce contracts or protect intellectual property.

Loss of Name Protection

A company’s name may no longer be protected, allowing third parties to register or misuse it, potentially causing financial and reputational harm.

Loss of Liability Protection

Limited liability protections for officers, directors, and shareholders may be compromised. This can result in piercing the corporate veil, exposing individuals to personal liability.

Penalties for Foreign Corporations

Companies registered to do business in other states may face fines, penalties, or even criminal exposure in certain jurisdictions if they fail to maintain good standing.

Restricted Access to Capital

Lenders and investors often require a Certificate of Good Standing before approving financing or entering into transactions.

Contractual and Regulatory Issues

Loss of good standing may:

• Breach contractual representations and warranties;
• Disqualify a company from licenses or permits;
• Result in regulatory non-compliance.

Tax Liens

Failure to pay taxes can result in tax liens, which often take priority over other financial obligations.

Importance of Ongoing Compliance

Maintaining good standing is essential to preserving a company’s legal rights, financial flexibility, and operational stability. Because compliance obligations can be overlooked, many companies benefit from legal guidance to ensure deadlines and requirements are consistently met.

The attorneys at Corporate Securities Legal LLP assist businesses with formation, compliance, and maintaining good standing year after year.

The process involves filing a registration statement—including a prospectus, financial statements, and other disclosures—followed by staff review, comment letters, amendments, and final approval. Once all regulatory requirements are satisfied and the company formally requests effectiveness, the SEC may declare the registration statement effective, allowing the company to proceed with its public offering.

Initial Staff Review

The SEC staff conducts an initial review of the registration statement to confirm compliance with disclosure and accounting requirements. The goal of the review is to ensure that the filing contains sufficient information for investors to make informed decisions.

Importantly, the SEC does not evaluate the merits of the transaction or determine whether the investment is appropriate for any particular investor.

The scope of review generally takes one of three forms:

• Full Review: A comprehensive examination of the entire filing for compliance with securities laws and disclosure standards.
• Financial Statement Review: A focused review of financial statements and related disclosures to ensure compliance with applicable accounting standards.
• Targeted Issue Review: A limited review focusing on specific disclosure issues or regulatory concerns.

Staff Comment Letter

After reviewing the filing, the SEC staff may issue a comment letter identifying deficiencies, questions, or areas where additional clarification is required.

Comment letters may request:

• Expanded disclosure to enhance investor understanding;
• Additional financial information;
• Clarification of statements that could potentially be misleading;
• Supplemental information that assists the staff in evaluating the filing.

Company Response to Comments

The company must respond to each staff comment, typically through a written response letter submitted alongside amendments to the registration statement.

Companies may address comments by:

• Providing additional explanations or analysis;
• Revising disclosure language within the filing;
• Supplying supplemental information requested by the staff.

If the company does not fully understand a comment, it may seek clarification from the reviewing examiner before responding.

Certain technical accounting issues may also be addressed with the SEC’s Office of the Chief Accountant, while disclosure issues are typically handled by the reviewing division.

Iterative Review Process

The SEC staff reviews the amended filing and the company’s responses. Depending on the adequacy of the revisions, the staff may issue additional comment letters requesting further clarification.

This iterative process—involving comments, responses, and amendments—continues until both the SEC staff and the company agree that the registration statement satisfies regulatory requirements.

Request for Effectiveness

Once all comments have been resolved, the company may formally request that the SEC declare the registration statement effective. This request signals that the company believes the filing is complete and compliant with applicable disclosure rules.

Declaration of Effectiveness

If the SEC staff determines that the filing satisfies all requirements, the Commission will declare the registration statement effective. The SEC confirms this determination through a formal notice and records the effectiveness on the EDGAR system.

Once the registration statement becomes effective, the company may legally proceed with its public offering of securities.

Legal Guidance During the SEC Review Process

Preparing and navigating a registration statement review requires careful coordination among legal counsel, accountants, and company management. Errors or incomplete disclosures can significantly delay the process or trigger additional regulatory scrutiny.

The attorneys at Corporate Securities Legal LLP assist companies throughout every stage of the public offering process—from preparing registration statements to responding to SEC comment letters and securing the final declaration of effectiveness.

Contact Corporate Securities Legal LLP to learn how experienced securities counsel can guide your company through the SEC registration review process and help ensure a successful public offering.

Board members hold fiduciary duties of care, loyalty, and obedience, which require them to protect company assets, oversee management, and ensure that corporate operations comply with applicable laws and governing documents.

Strategic Oversight and Corporate Governance

The number of directors serving on a board typically depends on the needs and size of the company. Boards provide strategic guidance and long-term planning, while the day-to-day execution of business operations is delegated to executive officers.

As part of their governance responsibilities, boards are expected to:

• Provide strategic direction and long-term planning;
• Oversee executive management performance;
• Protect company assets and financial stability;
• Identify and mitigate operational and regulatory risks;
• Ensure transparency and ethical business practices.

The powers and responsibilities of the board are defined in the articles of incorporation and corporate bylaws. Major corporate decisions—such as amendments to governing documents or mergers with other companies—generally require approval from shareholders, who ultimately own the corporation.

Fiduciary Duties of Directors

Directors are generally protected from liability for decisions made in good faith while performing their fiduciary duties. However, this protection only applies when directors act responsibly and within the scope of their obligations.

The three primary fiduciary duties include:

Duty of Care
Directors must act with the same level of diligence and prudence that a reasonably careful person would exercise under similar circumstances.

Duty of Loyalty
Directors must place the interests of the corporation above personal interests and avoid conflicts of interest when making decisions on behalf of the company.

Duty of Obedience
Directors must ensure that the corporation operates in compliance with applicable laws and its own governing documents.

Corporate governing documents may limit liability for certain decisions, but they generally cannot eliminate liability for breaches of fiduciary duties involving fraud, misconduct, or illegal activity.

Directors of publicly traded companies may also face liability for violations of federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934, particularly when anti-fraud or disclosure requirements are violated.

Indemnification of Directors

Most state corporate statutes provide indemnification protections for directors who successfully defend themselves against legal claims related to their service on the board.

Corporations may also voluntarily indemnify directors when the board determines that the individual acted:

• In good faith;
• In a manner reasonably believed to be in the corporation’s best interests.

These protections help encourage qualified individuals to serve as directors without undue personal risk.

Roles Within the Board Structure

Although the board acts collectively when making decisions, individual directors may hold specific leadership roles within the organization.

Common board positions include:

• Chairperson – Leads board meetings and guides the board in overseeing the company’s strategic direction.
• Vice Chairperson – Assists the chairperson and assumes responsibilities when necessary.
• Chief Executive Officer (CEO) – Implements the strategic decisions and policies adopted by the board.
• Chief Financial Officer (CFO) – Oversees financial management and reports to the board on financial performance and compliance matters.
• Corporate Secretary – Maintains board records, meeting minutes, and official corporate communications.
• Independent Directors – Provide objective perspectives and unbiased oversight in board decisions.

Board Committees

Boards frequently establish committees to assist with oversight responsibilities. These committees provide recommendations to the board but do not exercise the board’s full authority.

Common board committees include:

• Audit committees responsible for financial oversight;
• Compensation committees reviewing executive compensation structures;
• Governance committees addressing corporate governance policies and practices.

Preparing for Public Company Governance

Companies preparing for an initial public offering (IPO) must establish formal corporate governance policies and board procedures that comply with federal securities regulations and stock exchange requirements.

The attorneys at Corporate Securities Legal LLP assist companies in developing governance frameworks, advising boards of directors regarding fiduciary duties, and implementing the governance practices required for publicly traded companies.

Contact Corporate Securities Legal LLP to learn how effective corporate governance practices can strengthen your organization and prepare it for future growth and public market opportunities.

The Foreign Corrupt Practices Act of 1977 (FCPA) prohibits U.S. companies and individuals from offering or paying bribes to foreign officials in order to obtain or retain business advantages. The law applies to conduct occurring both outside and within the United States and broadly covers the use of mail or any means of interstate commerce in furtherance of improper payments.

The statute makes it unlawful to offer, promise, authorize, or provide money or anything of value while knowing that such benefits may be directed—either directly or indirectly—to a foreign official for the purpose of influencing official actions, securing improper advantages, or directing business opportunities.

Importantly, the FCPA also applies to foreign companies and individuals whose actions further corrupt payments within the United States.

Accounting and Internal Control Requirements

Companies subject to the FCPA must maintain strong internal accounting controls designed to ensure transparency and accurate financial reporting. Public companies whose securities trade in the United States are required to:

• Maintain books and records that accurately reflect corporate transactions;
• Implement internal accounting controls sufficient to prevent and detect improper payments;
• Ensure financial reporting systems properly account for corporate expenditures.

The U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) jointly enforce FCPA provisions. Violations may result in severe penalties, including:

• Civil and criminal enforcement actions;
• Monetary fines reaching up to twice the anticipated benefit obtained through misconduct;
• Individual criminal liability;
• Imprisonment of up to five years.

Increased Enforcement and National Security Concerns

Federal regulators have expanded FCPA enforcement efforts in response to growing concerns that corporate misconduct may impact national security. Enforcement priorities now include risks associated with:

• Sanctions evasion and export control violations;
• Cybercrime and cryptocurrency-related misconduct;
• Intellectual property theft;
• Disruption of critical supply chains and emerging technologies.

Companies are increasingly expected to implement sophisticated compliance programs and exit business relationships or markets presenting unacceptable regulatory risks.

DOJ Safe Harbor Policy for Mergers and Acquisitions

In October 2025, Deputy Attorney General Lisa O. Monaco announced a department-wide Safe Harbor Policy encouraging voluntary self-disclosure of misconduct discovered during mergers and acquisitions transactions.

Under this policy, acquiring companies that:

• Promptly and voluntarily disclose criminal misconduct;
• Fully cooperate with government investigations;
• Implement timely remediation measures;
• Provide restitution and disgorgement where appropriate

may receive a presumption of declination, meaning the DOJ may decline prosecution despite otherwise prosecutable conduct.

Significantly, misconduct discovered at an acquired company—including aggravating factors—will not automatically prevent the acquiring company from qualifying for Safe Harbor protection.

According to the DOJ’s FCPA Corporate Enforcement Policy, a declination applies where prosecution would otherwise occur but is avoided due to voluntary disclosure, cooperation, remediation, and financial restitution.

The Importance of Compliance Planning

Modern enforcement policy reflects a shift in regulatory expectations. Corporate compliance programs are no longer viewed merely as operational costs but as essential safeguards against substantial financial and reputational exposure.

Companies engaged in cross-border transactions or acquisition activity should evaluate compliance risks early in the transaction process to preserve eligibility under Safe Harbor protections.

For questions regarding FCPA compliance or voluntary self-disclosure obligations, consultation with experienced securities counsel is critical. The attorneys at Corporate Securities Legal LLP assist companies in meeting regulatory deadlines, conducting internal investigations, and navigating Safe Harbor requirements during mergers and acquisitions transactions.

Contact Corporate Securities Legal LLP to discuss strategies for maintaining compliance and minimizing enforcement risk under the Foreign Corrupt Practices Act.

The risks presented by artificial intelligence (AI) are becoming an increasing concern for corporate boards as emerging technologies influence business strategy, operations, and long-term planning. At the same time, regulators are closely examining how accurately companies disclose AI-related risks and the mitigation measures being implemented.

The U.S. Securities and Exchange Commission (SEC) has already initiated enforcement actions challenging misleading or incomplete disclosures related to artificial intelligence claims.

Growing Focus on AI Risk Reporting

A recent study conducted by Cornell University analyzed more than 30,000 filings from over 7,000 companies during the past five years. Using both quantitative and qualitative analysis, researchers identified a significant increase in AI risk disclosures. Mentions of AI-related risks in company filings increased from 4% of filings in 2020, to more than 43% of filings in 2024. This dramatic increase reflects both expanded corporate reliance on artificial intelligence and heightened regulatory scrutiny.

The Role of Form 10-K Disclosures

Evaluation of AI-related risk disclosure begins with Form 10-K, the annual report most U.S. public companies must file with the SEC. The Commission establishes required disclosure topics and prescribes how information must be presented to investors.

Companies must disclose:

• Material risks affecting business operations;
• Methods used to evaluate emerging risks;
• Strategies implemented to mitigate potential threats.

Because artificial intelligence can affect nearly every aspect of business operations, AI risks may be considered material at multiple levels, including:

• The broader economy;
• Industry-wide impacts;
• Geographic exposure;
• Company-specific operational risks.

Material Disclosure Obligations

Federal securities laws prohibit companies from:

• Making materially false or misleading statements; or
• Omitting material information necessary to prevent investor deception.

To reinforce accountability, both the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) must certify the accuracy and completeness of Form 10-K disclosures.

Categories of Material Risk

Companies generally evaluate disclosure obligations across four recognized categories of material risk.

Market Risk

Market risk arises from broad economic fluctuations such as:

• Interest rate changes;
• Foreign exchange volatility;
• Commodity price movements;
• Stock market valuation shifts.

These risks are largely outside company control but must still be disclosed when material.

Credit Risk

Credit risk evaluates the likelihood that customers or counterparties may fail to meet payment obligations. Companies may manage this risk through:

• Structured repayment terms;
• Collateral requirements;
• Credit evaluation procedures.

Liquidity Risk

Liquidity risk concerns a company’s ability to meet financial obligations as they become due. Companies must assess how quickly they can:

• Obtain financing; or
• Convert assets into cash during downturns.

Operational Risk

Operational risk involves failures in internal systems or external dependencies, including:

• Cybersecurity threats and AI system vulnerabilities;
• Ineffective internal controls;
• Employee training deficiencies;
• Supplier concentration risks;
• Financial reporting fraud or system failures.

Why Compliance Matters

Failure to comply with SEC disclosure requirements—including Form 10-K reporting obligations—can result in significant regulatory consequences and enforcement actions. Accurate disclosure not only promotes investor confidence but also protects companies from allegations of misleading statements.

Consultation with experienced securities counsel helps companies maintain compliance while developing practical risk mitigation strategies aligned with evolving regulatory expectations.

The securities lawyers at Corporate Securities Legal LLP assist companies in navigating disclosure obligations, strengthening compliance frameworks, and implementing effective governance practices related to emerging technologies such as artificial intelligence.

Contact Corporate Securities Legal LLP to ensure your company’s SEC disclosures remain accurate, compliant, and aligned with current regulatory standards.

Forward-looking statements are designed to address that final element: how management expects the company to perform going forward. While these statements can provide valuable insight into a company’s strategic vision, they also carry legal risk if not prepared carefully and in compliance with federal securities laws.

What Is a Forward-Looking Statement?

A forward-looking statement is a management prediction or projection regarding the future performance of a business. These statements are typically included in SEC registration materials and other public disclosures and may address a wide range of anticipated outcomes.

Common categories of forward-looking statements include:

• Financial performance
  Forecasts of revenue, losses, earnings per share, dividends, operating expenses, capital expenditures, and retained earnings.
• Operational plans
  Planned business development initiatives, mergers or acquisitions, capital investments, and anticipated product lines or services.
• Risk factors
  External conditions that could impact performance, such as economic trends, regulatory changes, or competitive pressures.
• Management assumptions
  The underlying assumptions and reasoning that support the company’s projections and strategic direction.
• Independent review
  Reports or analyses from outside reviewers that lend credibility to the reasonableness of management’s projections.
• Legal disclaimers
  Statements clarifying that projections are inherently speculative and not guarantees of future performance. The SEC requires such disclaimers in published management materials to prevent investors from treating projections as assurances.

Legal Protections for Management

To balance investor protection with the need for companies to communicate future plans, Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA). The PSLRA provides a “safe harbor” that protects corporate officers and directors from unwarranted securities fraud claims based solely on forward-looking statements, provided those statements meet statutory requirements.

Under U.S. Supreme Court interpretations of the PSLRA, an investor bringing a claim based on a forward-looking statement must prove:

• A material misrepresentation or omission meeting the legal definition of fraud;
• Direct reliance on that misrepresentation when deciding to buy or sell a security; and
• A resulting financial loss caused by the transaction.

Absent these elements, claims based on forward-looking statements are unlikely to succeed.

Procedural Requirements Under the PSLRA

The PSLRA also introduced procedural safeguards designed to curb frivolous shareholder lawsuits and abusive litigation practices. These safeguards include:

• Stricter pleading standards – Allegations of negligence are insufficient. Plaintiffs must plead facts creating a “strong inference” of fraudulent intent.
• Lead plaintiff requirements – Class actions must be led by the shareholder with the largest financial interest in the claim, not random or nominal investors.
• Automatic stay of discovery – Discovery is paused while motions to dismiss are pending, preventing plaintiffs from engaging in costly fishing expeditions.
• Limits on damages and attorneys’ fees – Recovery is limited to actual losses, and caps are placed on permissible attorneys’ fees.
• Auditor obligations – Auditors must report illegal acts to management and, if necessary, to the SEC.
• Proportional liability – Defendants are liable only for their share of the harm, rather than being jointly responsible for the entire damage award.

Why Proper Drafting Matters

To qualify for PSLRA safe harbor protection, forward-looking statements must meet specific statutory and regulatory requirements. Poorly drafted projections, missing disclaimers, or unsupported assumptions can expose a company and its leadership to unnecessary legal risk and SEC scrutiny.

Need Guidance on Forward-Looking Statements?

The attorneys at Corporate Securities Legal LLP have extensive experience preparing compliant forward-looking statements and full SEC registration filings. Our team understands how to balance meaningful disclosure with legal protection, helping companies avoid delays, revisions, and enforcement exposure.

Contact us to ensure your forward-looking statements meet SEC requirements, qualify for PSLRA safe harbor protection, and move smoothly through the registration process.

A mandatory arbitration provision requires investors to arbitrate claims arising under the federal securities laws with the issuer of the securities, rather than pursuing those claims in federal court. In the context of an SEC registration statement, this is commonly referred to as an issuer-investor mandatory arbitration provision.

According to Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission (SEC):

“A mandatory arbitration provision requires an investor to arbitrate its claims arising under the federal securities laws with the issuer of the securities.”

Mandatory arbitration provisions offer an alternative forum for resolving disputes and have long raised questions regarding enforceability and investor protections under federal securities laws.

Is Arbitration a Satisfactory Alternative to Federal Court Litigation?

The Federal Arbitration Act of 1925 (“FAA”) established a strong federal policy favoring arbitration agreements. Section 2 of the FAA, its principal substantive provision, states in relevant part:

“A written provision in a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction shall be valid, irrevocable, and enforceable.”

Whether the FAA applies to issuer-investor mandatory arbitration provisions depends initially on whether there is a valid and enforceable written agreement to arbitrate between the parties.

Do Federal Securities Laws Override the FAA?

Chairman Atkins has explained that issuer-investor mandatory arbitration provisions have historically been viewed as potentially inconsistent with federal securities statutes in at least two ways:

They may violate the anti-waiver provisions of federal securities laws by foreclosing a judicial forum; and
They may impede investors’ ability to bring private actions—particularly class actions—to enforce their rights under federal securities laws.

Anti-Waiver Provisions Under Federal Securities Laws

Section 14 of the Securities Act of 1933 and Section 29(a) of the Securities Exchange Act of 1934 contain anti-waiver provisions that invalidate contractual clauses which:

•Require investors to waive compliance with federal securities laws; or
•Eliminate substantive investor protections, including remedies for fraud.

Supreme Court Resolution of Arbitration and Anti-Waiver Conflicts

In a series of decisions issued in the late 1980s, the U.S. Supreme Court clarified the relationship between arbitration agreements and federal securities laws. The Court held that:

1. Anti-waiver provisions prohibit waivers of substantive obligations, not procedural or jurisdictional provisions;
2. The arbitration process does not inherently undermine substantive rights granted under the Securities Act; and
3. To override the FAA, Congress must express a “clear and manifest” intention to do so in subsequent legislation.

These rulings significantly strengthened the enforceability of arbitration agreements in securities-related disputes.

New SEC Policy Statement

On September 17, 2025, the SEC issued a policy statement titled Acceleration of Effectiveness of Registration Statements of Issuers with Certain Mandatory Arbitration Provisions.

In announcing the policy change, Chairman Atkins stated:

“The Commission has determined that the presence of an issuer-investor mandatory arbitration provision will not impact decisions regarding whether to accelerate the effectiveness of a registration statement.”

This policy marks a significant shift, making clear that mandatory arbitration provisions will no longer impede SEC approval or acceleration of registration statements.

Need Legal Guidance on Mandatory Arbitration Provisions?

The attorneys at Corporate Securities Legal LLP advise companies on the advantages and risks associated with mandatory arbitration provisions, registration statement disclosures, and all aspects of the IPO process.

Our team is prepared to help you evaluate strategic considerations, comply with SEC requirements, and structure registration statements for a successful public offering.

Public companies are required under U.S. Securities and Exchange Commission (SEC) rules to periodically provide transparent disclosures to investors and the public regarding executive compensation, partcularly when compensation is tied to equity awards such as stock and stock options. These requirements are collectively referred to as equity plan disclosure rules.

Equity plan disclosures include:

• Grant policies
• Pay versus performance policies
• Clawback policies
• Insider trading and ownership disclosures

SEC Requirements for Pay Versus Performance Disclosures

The SEC provides highly specific instructions governing how pay versus performance information must be presented. Public companies are required to include detailed tables that compare executive compensation against company performance metrics.

These tables must clearly disclose:

• The compensation of the Chief Executive Officer (CEO);
• The average compensation of other Named Executive Officers (NEOs); and
• The company’s financial performance, often tied to equity-based awards.

The purpose of these disclosures is to allow investors to evaluate whether executive compensation aligns with company performance.

Mandatory and Company-Selected Performance Measures

Under SEC rules adopted in 2022 pursuant to the Dodd-Frank Act, public companies must disclose specific performance measures in their proxy statements to illustrate the relationship between executive pay and performance.

Mandatory measures include:

• Total Shareholder Return (TSR); and
• Net income.

In addition, companies must identify and disclose Company-Selected Measures (CSMs)—the financial performance measures the company believes are most important in linking executive compensation to performance.

Common CSMs include:

• Earnings before interest, taxes, depreciation, and amortization (EBITDA);
• Earnings per share (EPS); and
• Revenue or sales.

TSR measures the return generated for shareholders through stock price appreciation and dividends over a specified period and must be compared to a selected peer group. Net income reflects the company’s profitability after all expenses and taxes.

Uniform Formatting and Disclosure Obligations

The SEC requires pay versus performance disclosures to be presented in a uniform and standardized format to ensure comparability across public companies. Failure to comply with the prescribed format constitutes a violation of SEC reporting requirements. Ignorance of the rules is not a defense.

The SEC’s detailed disclosure instructions include the following requirements:

1. Footnotes to the table. Registrants must disclose specified information in footnotes, including the name of each Principal Executive Officer (PEO) and each non-PEO NEO included in the average compensation amounts, as well as amounts deducted or added to calculate executive compensation actually paid.
2. Relationship disclosure. Item 402(v) requires registrants to describe the relationships between each financial performance measure and the executive compensation actually paid to the PEO and, on average, to other NEOs over the five most recently completed fiscal years (or three years for Smaller Reporting Companies). Registrants other than SRCs must also describe the relationship between company TSR and peer group TSR. These disclosures may be presented in narrative, graphical, or combined formats.
3. Tabular List. Registrants other than SRCs must provide a list of three to seven financial performance measures they determine are the most important measures used to link executive compensation to performance. Non-financial measures may be included if they are among the company’s most important metrics.
4. Inline XBRL. All registrants are required to use Inline XBRL to tag pay versus performance disclosures in proxy or information statements. Each value in the pay versus performance table must be separately tagged, with block-text tagging required for footnotes, relationship disclosures, and the Tabular List where applicable.

Why This Matters for Public Companies

Pay versus performance disclosures are a frequent focus of SEC review and investor scrutiny. Errors, omissions, or deviations from the required format can result in regulatory comments, amended filings, enforcement actions, and reputational harm.

Careful coordination between legal, finance, compensation, and reporting teams is essential to ensure compliance and minimize regulatory risk.

Need Legal Guidance on Pay Versus Performance Compliance?

The securities attorneys at Corporate Securities Legal LLP advise public companies on executive compensation disclosures, proxy statement compliance, equity plan reporting, and SEC regulatory strategy.

Our team can help ensure your Pay Versus Performance Executive Compensation disclosures fully comply with SEC requirements—so you can avoid regulatory exposure and the uncertainty of how the SEC may respond.

Rule 504

Rule 504 of Regulation D provides an exemption from registration for a 12-month period on the offer and sale of up to $5,000,000.Rule 504 permits general offerings and solicitations so long as they are restricted to accredited investors.

Companies that are not eligible to use the Rule 504 exemption include: companies that are already Exchange Act reported companies, investment companies, companies that “have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company,” and companies with people disqualified under the “bad actor” disqualification provisions.

See: https://www.sec.gov/divisions/corpfin/guidance/rule504-issuer-small-entity-compliance.html

Rule 501(d)(1)(i)-(viii) lists the bad acts that fall under the “bad actor” disqualification rule. Only “bad acts” that have occurred on or after September 23, 2013 can destroy the exemption. Bad actors include:

• Those who have been convicted within ten years of the saleof a felony or misdemeanor in connection with the purchase or sale of any security, involving any false filing with the SEC, or arising out of the business conduct of financial intermediaries.
• Those subject to an SEC order at the time of sale entered under provisions related to investment companies, dealers, and brokers
• Those subject to an SEC order at the time of sale that mandates the person to “cease and desist from committing or causing violations or future violations” of any intentional antifraud provision of the federal securities laws
• Those suspended or expelled from membership in a registered national securities exchange or affiliated securities association for acts found to be incompatible with the just and equitable principles of trade

See: https://www.lexisnexis.com/legalnewsroom/banking/b/banking-finance/posts/rule-506-d-bad-actor-disqualifications-who-s-a-bad-actor-and-why-are-they-bad-part-i for more information

Rule 506

Rule 506 of Regulation Dpermits two distinct exemptions from registration when companies offer and sell securities. These two exemptions are split based on whether the issuer will engage in general solicitation to market securities.

The first exemption falls under Section 4(a)(2) of Rule 506(b). Section 4(a)(2) provides a “safe harbor” for companies that comply with certain requirements. In addition to a prohibition from using general solicitation to market securities,the requirements of the exemption include:

The second exemption amends Section 4(a)(2) by permitting general solicitation.Companies remain exemptif participating investors are all accredited. For this exemption to apply, companies must take reasonable steps to confirm investors are in fact accredited. This amendment is stated in Rule 506(c).

Companies that comply with exemption requirements do not need to register their securities offering with the SEC. However, these companies must electronically file a “Form D” with the SEC after they initially sell securities. This form is a short notice that contains names and locations of promoters and executives and brief information about the offering.

See: https://www.sec.gov/fast-answers/answers-rule506htm.html

Why is it important to get an exemption from registration?

It is important to get an exemption from registration because by operating under Rule 506 exemptions, companies can raise unlimited capital from an unlimited number of accredited investors (and up to thirty-five (35) non-accredited investors).

Accredited investors are individuals with a joint net worth with their spouse of at least $1 million. Accredited investors also include individuals with income exceeding $200,000 in each of the two most recent years, or joint income with their spouse exceeding $300,000, plus “a reasonable expectation of reaching these income levels in the current year.” Companies with total assets in excess of $5 million are also accredited investors.

Being eligible for an exemption is important for getting help with funding from these types of accredited investors. About 90-95% of all private placements are conducted pursuant to Rule 506, and deals with accredited investors are generally private placements exempt from registration under Rule 506.

See: https://www.thesecuritiesedge.com/2012/09/securities-law-101-part-ii-avoiding-the-pitfalls-in-a-private-placement/

Also: Without an exemption from registration, the issuer, salespeople, officers, directors, and agents may be personally liable. If found liable, the investor can recover the principal, interest, and attorney fees.

See: https://www.equitynet.com/crowdfunding-terminology/general-solicitation