What is a NYSE Control Company Anyway? NYSE Attorneys

Public Companies that qualify as a “Controlled Company” with securities listed on the Nasdaq Stock Market (NASDAQ) or the New York Stock Exchange (NYSE), must comply with the exchange’s continued listing standards to maintain their listings. NASDAQ and the NYSE have adopted qualitative listing standards.  Companies that do not comply with these corporate governance requirements may lose their listing status.

Under NASDAQ and NYSE rules a “controlled company” is a company with more than 50% of its voting power held by a single person, entity or group. Under NYSE and NASDAQ rules, a controlled company is exempt from certain corporate governance requirements including:

• the requirement that a majority of the board of directors consist of independent directors;
• the requirement that a listed company have a nominating and governance committee that is composed entirely of independent directors with a written charter addressing the committee’s  purpose and responsibilities;
• the requirement that a listed company have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;
• the requirement for an annual performance evaluation of the nominating and governance committee and compensation committee.

Controlled companies must still comply with the exchanges of other corporate governance standards. These include having an audit committee and the special meetings of independent or non-management directors.

Both the NYSE and NASDAQ exchanges require a company seeking to avail itself to the controlled company to comply with the disclosure requirements of Item 407(a) of Regulation S-K, which requires that a company listed on a national securities exchange have a board with a majority of independent directors and disclose in its proxy statement or Form 10-K the exemption (that it is a controlled company); and the basis for reliance on the controlled company exemption. The controlled company must also disclose the specific stock exchange requirements it elects not to comply with.

For further information about the control company rules of the NYSE and NASDAQ, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956 or by email at [email protected].   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.