United States: SEC Staff Issues Global No-Action Relief From Exchange Act Registration For Restricted Stock Units

On February 13, 2012, the staff of the U.S. Securities and Exchange Commission's Division of Corporation Finance (the "Staff") issued a global no-action letter that provides relief from the requirement to register under the Securities Exchange Act of 1934, as amended (the "Exchange Act") upon reaching the holder of record threshold due to the issuance of restricted stock units ("RSUs").1

The Staff's position is limited to RSUs that meet the conditions specified in the no-action letter and does not apply to a company generally, nor does the Staff's position cover other securities that the company may issue. The Staff had previously provided no-action relief on the topic to individual companies, including Facebook, Zynga and Twitter.2


Generally, under Section 12(g) of the Exchange Act and Exchange Act Rule 12g-1, any company with assets in excess of $10 million and a class of equity securities held of record by five hundred or more persons is required to register that class of equity securities under the Exchange Act. Absent relief from the Staff, a company that issues RSUs to five hundred holders of record or more would be required to file an Exchange Act registration statement and become subject to the Exchange Act's reporting requirements. The Securities and Exchange Commission (the "Commission") has previously indicated that the five hundred holders of record threshold correlates to companies that are presumed to have an active trading market in their securities and therefore should be required to provide mandatory disclosure to protect the company's investors.

In 2007, the Commission exempted certain compensatory stock options (but not the shares underlying such options) from the Exchange Act Section 12(g) registration requirements.3 However, the Commission's exemption covered only compensatory stock options and did not exempt RSUs from the Section 12(g) registration requirements. As noted above, in recent years the Staff has granted no-action relief from Section 12(g) registration requirements relating to RSUs, but each of these no-action letters has been limited to the specific facts and circumstances of the company receiving the relief.


Unlike a grant of restricted stock, in which shares of a company's stock are issued to an employee, an RSU represents the right to receive a number of shares of company stock in the future, subject to certain conditions. Such conditions may be time-based (vesting over a period of continued service to the company), performance-based (vesting after certain performance objectives are met), or some combination of the two, or they may relate to the occurrence of an event such as an initial public offering. Depending upon the nature of the company's compensation program, the company may issue shares of the company's stock, cash or some combination of the two in settlement of the RSUs.

As noted in the no-action request, holders of RSUs do not, by virtue of such RSUs, hold shares of the company's common stock, nor are they able to vote the shares or receive dividends. In addition, these RSUs are typically issued under written compensatory equity incentive plans and are only awarded to the company's employees, directors and consultants. Such plans and the related award agreements also strictly limit the ability of an RSU holder to transfer the RSU to another holder, other than to family members by gift or domestic relations order, or to an executor or guardian upon the holders' death or disability, to the company, or in connection with a change of control or other acquisition transaction involving the company, if after such transactions the RSUs will not be outstanding and the company will no longer be relying upon the Staff's relief.


The incoming no-action request notes a number of factors from the exemptive provisions of Exchange Act Section 12(h) in support of the Staff's grant of relief from the Exchange Act registration requirements of Section 12(g) for RSUs.

Specifically, the request notes that the issuance of RSUs does not affect the number of public investors in a company because RSU holders do not pay cash or other similar consideration in exchange for the RSU and, as noted above, there are strict limits on the transfer of RSUs to other holders. For this reason, there is also very little trading interest in the RSUs, another factor for the Staff's consideration under Section 12(h). Finally, the request also notes that any Staff relief would only be available for private companies, as Section 12(h) directs the Staff to consider the nature of the issuer in contemplating whether exemptive relief should be granted.

In its response, the Staff indicated that it will not object if a company does not comply with the registration requirements of Section 12(g) of the Exchange Act with respect to RSUs if such RSUs are granted pursuant to a written compensatory equity incentive plan and subject to certain terms and conditions described in the incoming request letter. In addition, the Staff notes that its position remains in effect until the company otherwise becomes subject to Exchange Act registration or reporting requirements with respect to any other class of its securities.

The request includes terms and conditions that RSUs must meet in order to be covered by the Staff's relief. The company must agree in the written equity incentive plan, a written agreement with the RSU holder, or in another agreement enforceable against the company to provide the RSU holder with the information specified in Exchange Act Rule 12h-1(f)(vi), which includes certain financial statements and other information, until such time as the company becomes subject to Exchange Act reporting requirements or is no longer relying on the Staff's relief. In addition, such RSUs must be:

  • Issued under a written compensatory equity incentive plan established by the company, a parent or subsidiary of the company, or a majority-owned subsidiary of the company's parent;
  • Held by only the persons described in Rule 701(c) under the Securities Act of 1933, as amended (the "Securities Act"), which consists of employees and directors of, and consultants to, the company and certain transferees (described below);
  • Transferable only to (i) family members (as defined in Securities Act Rule 701(c)(3)) by gift or domestic relations order or to an executor or guardian upon the holders' death or disability; (ii) the company; or (iii) in connection with a change of control or other acquisition transaction involving the company, if after such transactions the RSUs will not be outstanding and the company will no longer be relying upon the Staff's relief;
  • Restricted under the written equity incentive plan, written agreement, or the company's organizational documents as to any pledge, hypothecation, or other transfer, including any short position, any put equivalent position (as defined in Exchange Act Rule 16a-1(h)) or any call equivalent position (as defined in Exchange Act Rule 16a-1(b)), by the RSU holder prior to the settlement of the RSU (except as described above); and
  • Transferable by subsequent holders of the RSU only upon the death of such holder, with such restrictions on subsequent transfer included in the company's written compensatory equity incentive plan, written agreement, or the company's organizational documents, and acknowledged in writing by such transferees.


The Staff's relief essentially expands the exemption from Section 12(g) registration that the Commission previously granted for compensatory stock options to include RSUs that meet the terms and conditions described in the no-action request. The Staff's position perhaps reflects the need for similar treatment of these two forms of compensation, particularly given the recent increase in the popularity of RSUs as an element of compensation.

Because the Staff has opted to issue a global no-action position, companies will be able to rely on the no-action letter's relief and take comfort that they will not be required to file an Exchange Act registration statement and become subject to the Exchange Act reporting requirements by virtue issuing RSUs to five hundred or more record holders. Companies should take care, however, to ensure that such RSUs meet the terms and conditions described in the no-action request, including the absence of public investors and the lack of trading interest in the RSUs. If the terms and conditions of a company's RSUs differ from those contemplated in the no-action letter, the company should consider revisiting its RSU program to determine if changes should be made going forward that will make the Staff's relief in this letter available in the future.


1. Fenwick & West LLP (February 13, 2012). The Staff's response and the incoming request are available at http://www.sec.gov/divisions/corpfin/cf-noaction/2012/fenwickwest021312-12g.htm .

2. See Facebook, Inc. (October 14, 2008); Zynga Inc. (June 17, 2011); and Twitter, Inc. (September 13, 2011).

3. SEC Release No. 34-56887 (December 7, 2007).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.