On February 11, 2025, the SEC’s Division of Corporation Finance (Corp Fin) updated its Compliance and Disclosure Interpretations (CDIs) relating to Regulation 13D-G beneficial ownership reporting by revising Question 103.11 and issuing new Question 103.12.
In revised Question 103.11, Corp Fin expressed the view that a shareholder’s inability to rely on the exemption from the Hart-Scott-Rodino Act’s notification and waiting period provisions due to the shareholder’s efforts to influence management on a particular topic does not, by itself, disqualify the shareholder from reporting beneficial ownership on Schedule 13G. Rather, the shareholder’s eligibility to report on Schedule 13G will depend, among other things, on whether the securities were acquired or are held “for the purpose of or with the effect of changing or influencing the control of the issuer.” The CDI reiterates that the determination is to be made in light of all the facts and circumstances and is informed by the definition of “control” in Exchange Act Rule 12b-2. The previous version of Question 103.11 (see comparison here) included examples of shareholder activity that may impact eligibility to report on Schedule 13G. Corp Fin revised and incorporated the examples into new Question 103.12.
New Question 103.12 addresses circumstances where a shareholder’s engagement with a management team may be considered to have the “purpose or effect of changing or influencing control” of the company. The CDI notes that determination of whether a shareholder acquired or is holding securities with the purpose or effect of changing or influencing control is based on the facts and circumstances. The CDI highlights certain actions that would render Schedule 13G unavailable to the shareholder, such as specifically calling for the sale of the company or a significant amount of the company’s assets, the restructuring of the company, or the election of director nominees other than the company’s nominees. In addition, the CDI outlines circumstances under which Schedule 13G may be unavailable, depending on the facts and circumstances. These include, for example, where a shareholder 1) seeks governance changes at the company, such as the removal of a staggered board; or 2) discusses with management its voting policy on a particular topic and how the company fails to meet the shareholder’s expectations on such topic.
These updates provide a helpful reminder of the general limits of the use of Schedule 13G in connection with engagement by shareholders.
