The Nasdaq stock exchange is a popular destination for companies seeking to go public or looking for a secondary listing. As a publicly traded company, however, Nasdaq imposes a number of rules and regulations that companies must comply with to maintain their listing status. One of these rules relates to shareholder approval.
In this blog post, we will explore the situations in which Nasdaq requires shareholder approval and what companies can do to ensure compliance.
Equity Compensation Plans:
One of the most common situations in which Nasdaq requires shareholder approval is for equity compensation plans. These plans, which include stock option plans and restricted stock plans, allow companies to issue equity to employees and other stakeholders. Nasdaq Rule 5635(c) requires that these plans be approved by a majority of the company’s independent directors or by the company’s shareholders.
Issuance of Securities:
Nasdaq Rule 5635(d) requires shareholder approval for the issuance of securities that would result in a change of control of the company. This rule is designed to protect the interests of existing shareholders in the event of a significant ownership change.
Acquisition of Assets:
Under Nasdaq Rule 5635(a), shareholder approval is required for the acquisition of assets that would require the company to issue more than 20% of its outstanding common stock. This rule ensures that shareholders have a say in major asset acquisitions and that the company does not dilute their ownership interests without their consent.
Changes to Corporate Governance:
Nasdaq Rule 5635(e) requires shareholder approval for changes to the company’s articles of incorporation or bylaws that would materially and adversely affect shareholder rights. This rule is designed to ensure that shareholders have a say in important corporate governance decisions.
Private Placements:
Finally, Nasdaq Rule 5635(b) requires shareholder approval for private placements of securities that would result in the issuance of more than 20% of the company’s outstanding common stock or voting power. This rule ensures that shareholders have a say in major equity issuances and prevents dilution of their ownership interests.
Conclusion:
Compliance with Nasdaq’s rules and regulations regarding shareholder approval is critical for companies seeking to maintain their listing status. Failure to comply can result in delisting notices and other serious consequences. Companies should consult with legal and financial advisors to ensure they are in compliance with Nasdaq’s rules and regulations regarding shareholder approval. By taking a proactive approach, companies can avoid potential issues and ensure that they remain in good standing with Nasdaq.
