Form S-3: What is it?

Form S-3 is a simplified securities and exchange form that registers securities for companies. In order to use Form S-3, certain criteria must be met. Form S-3 can be used by a company that qualifies, in order to register securities under the Securities Act of 1933, instead of using the original Form S-1.

Registrant Requirements

S-3 registration gives investors the right to demand that a company registers their shares using Form S-3. Form S-3 is a shorter registration form than Form S-1, which is used in an initial stock launch or IPO. Form S-3 can be used by a company one year after an IPO. 

In order to use Form S-3 for securities, your company must meet certain requirements:

  • The company is organized within the United States, a territory of the U.S., or the District of Columbia, and has its main business operations in the U.S. or its territories.
  • The company already has securities registered in accordance with the Securities Exchange Act of 1934.
  • They need to have at least $75 million in public float. Public float is the portion of shares that are in the hands of public investors. For companies that have less than $75 million, they are limited to one-third of the market value in any trailing 12-month period. This one-third rule is called the "baby shelf rule."
  • They have traded at least $1 billion in non-convertible securities (other than common equity) in primary offerings for cash, not exchange, in the last three years.
  • The company has previously been subject to the requirements of Section 12 or 15(d) of the Exchange Act and has filed all the information that is required to be in accordance with Sections 13, 14 or 15(d) for at least twelve calendar months immediately before filing Form S-3.
  • The company and its subsidiaries have not failed to pay any dividend or sinking fund installments on preferred stock, or defaulted on any installments of borrowed money or on any long-term leases, since the close of the last fiscal year.
  • The company has filed all previous paperwork in a timely fashion and they trade regularly on the national exchange.

Transaction Requirements

Not all securities can be filed using Form S-3. In order to use Form S-3, the transaction needs to be one of the following types of transactions.

  • Primary and secondary offerings that are offered for cash by a company that has met the registrant's requirements.
  • Primary offerings of non-convertible equity other than common stock.
  • Securities that are secondary, meaning they are offered to someone other than the issuer of the security. 
  • Rights offerings, dividend or interest reinvestment plans, conversions, warrants, and stock options that are being sold for cash.

Negotiations of Form S-3

While many investors want companies to use the S-3 forms for the ease and quickness, there are some things that should be negotiated between companies and investors beforehand.

  • The number of S-3 registrations: Companies will want this number to be low. As few as two or three a year are best. Investors want unlimited amounts. There are legal and accounting expenses associated with all S-3 registrations, which is why a company will want to keep them to a minimum.
  • The minimum size of an S-3 registration: To make this worthwhile for a company, S-3 registrations should have a minimum amount required before they are to be registered (something like $1 million). This will avoid any frivolous registration requests.

Form 8-K

Form 8-K is a securities and exchange document that needs to be filled out by a company when a major event occurs. Possible events can be the termination of a business agreement, the completion of an acquisition, or the addition or removal of a director or certain officers. The form is important because it gives current and future investors real-time disclosure of important corporate events. It must be filed within four days of the event taking place. 

Not filing your 8-K on time under these specified items will affect your eligibility to use Form S-3: 

  • Item 1.03 – Bankruptcy or Receivership
  • Item 2.01 – Completion of Acquisition or Disposition of Assets 
  • Item 3.01 – Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
  • Item 3.02 – Unregistered Sales of Equity Securities 
  • Item 3.03 – Material Modification to Rights of Security Holders 
  • Item 4.01 – Changes in Registrant's Certifying Accountant Item 
  • Item 4.02(b)-(c) – Non-Reliance on Audit Report or Completed Interim Review 
  • Item 5.01 – Changes in Control of Registrant 
  • Item 5.02(a)-(d), (f) – Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers 
  • Item 5.03 – Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year 
  • Item 5.04 – Temporary Suspension of Trading Under Registrant's Employee Benefit Plans 
  • Item 5.05 – Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics 
  • Item 5.06 – Change in Shell Company Status 
  • Item 5.07 – Submission of Matters to a Vote of Security Holders 
  • Item 5.08 – Shareholder Director Nominations 
  • Item 6.01 – ABS Informational and Computational Material 
  • Item 6.02 – Change of Servicer or Trustee 
  • Item 6.03 – Change in Credit Enhancement or Other External Support 
  • Item 6.04 – Failure to Make a Required Distribution 
  • Item 6.05 – Securities Act Updating Disclosure 
  • Item 6.06 – Static Pool 

If you fail to file Form 8-K in time under any other item, it will not affect your company's eligibility to use Form S-3.

Timely Exchange Act

All Exchange Act reports need to be filed before 5:30 p.m. Eastern Time on the day that the filing is due. Any reports submitted after 5:30 p.m. will not be filed until the next business day.  A matter of minutes can disallow the use of Form S-3.

The period of Form S-3 ineligibility starts on the date the Exchange Act report was due and lasts for twelve months.

Curing an Untimely Filing under Form 8-K 

If your company attempted to file an Exchange Act report on time but was unable to do so due to situations that were beyond the company's control, then you can submit a request to adjust the filing date under Rule 13(b) of Regulation S-T.

This type of request needs to be made by the company through a publicly available CORRESP submission. It needs to be addressed to the SEC's Chief, Office of Information Technology, Division of Corporation Finance.

Before submitting any requests, it is recommended that you speak to SEC staff over the phone about your situation. Your request should give a clear and detailed description of why you were unable to file on time and how your company would be harmed if you are not granted your request. If your request is granted, it will be as though you filed on time. 

In order to maintain eligibility of Form S-3 after a late filing, you can also seek a waiver of Form S-3 eligibility requirements. While these are only granted in certain circumstances, it does remain an option and is something you should discuss with an SEC officer.

In any requests for continued eligibility of the use of Form S-3, the SEC's main consideration will be the number of days the filing is late. The later the filing, the less likely you are to receive a waiver. They will also consider whether the information required on the forms was disclosed publicly in any other way, such as through a press release. Companies will also have to show that they need the waiver because they plan to access public capital markets in the near future. If the Division does grant the waiver, they will only let you know by telephone, not in writing. 

Impact of Form S-3 Ineligibility 

If you are late filing Form 8-K and you don't remedy it, your company will not be able to file a new Form S-3 for at least twelve months. Effective registration statements on Form S-3 are affected but in a different way. The company can continue to use the effective registration statement until the date the company is required to update it under Section 10(a)(3) of the Securities Act.

Conducting a Public Securities Offering During Form S-3 Ineligibility 

If a company is not allowed to use Form S-3, registered offerings for cash need to be made on the appropriate registration statement form, typically Form S-1, if your company has an effective registration statement. 

There are a few things you will need to consider if you will be filing public securities offerings using Form S-1.

  • A registration fee is required for a standalone Form S-1.
  • A new legality opinion would be required as an exhibit.
  • New signatures are required from the company's CEO, CFO, CAO, and at least a majority of the company's directors.

Content of Form S-1 

Form S-1 registration statements look very similar to Form S-3. One main difference is that Form S-1 does not allow incorporation by reference of future Exchange Act reports. If at any point updates are required to the Form S-1, they can only be made by a prospectus supplement or a post-effective amendment. 

Effectiveness of Form S-1 

Automatic shelf registration statements on Form S-3ASR that are filed by WKSIs are effective immediately once they are filed. Other types of registration, such as Form S-1, are subject to review by the SEC staff before they are effective.

If your forms are selected for a full review by the SEC staff, you will receive a comment letter from the SEC staff about thirty days after filing. You will then need to reply and answer all of the questions that the SEC have asked. If you are told by the SEC that your company registration statement has not been selected for review, it will become effective within in a matter of days. 

It is important to note that Form S-1 requires disclosures also contained in the proxy statement. Specifically, executive compensation disclosures. The SEC will not declare a Form S-1 registration statement effective until that information is present.

Timing of Filing the Form S-1 

According to Rule 415 under the Securities Act, you cannot submit delayed offerings on Form S-1 for securities. This means that Form S-1 needs to be filed ahead of any discrete, standalone offerings, leaving enough time for a possible SEC review.

Offerings for the account of selling security holders, or secondary offerings, that are registered on Form S-1 can be made as a delayed or continuous offering. This means that they can be filed at any time.

Conducting a Securities Offering After Restoring Form S-3 Eligibility 

If an existing Form S-3 registration statement has not been converted to Form S-1, the company can begin using that registration statement without any other action needed as long as Form S-3 eligibility has been restored.

If the conversion to Form S-1 has been made, the company will need to file another post-effective amendment in order to convert that registration statement back into a Form S-3. You can't use a post-effective amendment to convert a Form S-1 into a Form S-3. It also can't be used to add securities to a Form S-1 registration statement. 

What's on Form S-3?

Form S-3 contains two main parts. 

  • Part one: A cover page, the risk factors, and a prospectus that will be made available to all potential investors once the form is filed. 
  • Part two: Exhibits, undertakings, and any other disclosures that are not usually made directly available to investors. They are, however, made available to the public through the SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.

Additional sections that are to be included in the S-3 form depend on what type of company is doing the issuing and what type of security is being issued. It usually includes a disclosure of the ratio of earnings to fixed charges, plans of distribution, and a full description of the securities that are being registered.

Items of Particular Interest to the SEC Staff

Some points of disclosure receive much more attention from the SEC staff than others. For Form S-3 registration statements, the Staff has a history of issuing certain comments:

  • Selling security holders and identification of broker-dealers as underwriters
  • Incorporation by reference
  • Legal opinions
  • In cases of universal shelf, the description of securities

The best way to minimize these comments is to:

  • Sell security holders and identification of broker-dealers as underwriters. The SEC routinely issues comments where a selling security holder is an entity but the registrant has not mentioned who exercises the voting or dispositive power over the securities of that entity.  The selling security holder may be a broker-dealer or an affiliate of a broker-dealer. The SEC wants you to disclose this fact. If the selling security holder is a broker-dealer but is not identified as an underwriter, the SEC will ask that the registrant lists the broker-dealer as an underwriter.  
  • Incorporate by reference. A benefit of using a Form S-3 registration statement is that you are able to incorporate by reference subsequently filed Exchange Act reports, known as forward incorporation. Forward incorporation eliminates the time and expense associated with filing post-effective amendments to the Form S-3 in order to update it for any changes. 
  • Get legal opinions. The SEC frequently issues comments about the legal opinions issued in connection with offerings on Form S-3.  The most common mistakes that are made when it comes to getting legal opinions include:
    • Making statements in the opinion letter that imply no one else can be relied upon other than the registrant.
    • Stating that debt securities, guarantees, options, warrants, and rights are all valid, fully paid, and non-assessable.
    • Stating that shares "will" be validly issued, fully paid, and non-assessable. The shares are outstanding, so surely it should state that they "are" validly issued, fully paid, and non-assessable.
    • Making overly broad assumptions. Everything stated should be clear and specific with assurances to back them up.
  • Universal shelf-description of securities. The universal shelf usually registers several different types of securities. This can include common stock, preferred stock, convertible notes, debentures, warrants, and rights. SEC rules allow the base prospectus of the universal shelf to include a general description of the securities to be registered, with a more detailed description to be included on additional supplements. Be very clear in your supplemental materials.

Tips for Dealing with the SEC During the Review Process

Usually, the SEC staff will not comment on a registration statement until it has been filed through EDGAR.  You can, however, request a pre-filing conference with the SEC for any issues that you want to address before filing.  

If the SEC agrees to review your pre-filing issues, it will request a letter explaining the issues. Whenever you are dealing with the SEC over the phone you should make sure that you include all necessary parties to help answer any of the SEC's questions.

After the registration statement has been filed, the SEC will usually get back in touch within five to six business days to let you know whether there will be a full review of the registration statement, a targeted or limited review of the registration statement, or no review of the registration statement.

A full review usually means that the SEC will assign two lawyers and two accountants to review the entire document. A targeted review means that the SEC will only focus on a specific section of the document.

If you haven't heard from the SEC after the five- to six-day period, you should call the Assistant Director Office that corresponds with your company's industry. These Offices generally have between four and eight staff attorneys, four and eight staff accountants, an assistant chief accountant, two accounting branch chiefs, a special counsel, a legal branch chief, a senior assistant chief accountant, and an assistant director.

Once the registration statement has been assigned for review, the SEC will try to give their comments within 27 days of the filing date. For any additional amendments to the statement, the SEC will try to reply within 10 business days.  

If you disagree with a position taken by the SEC staff member that is in charge of reviewing your filing, you can request to have a conference with the supervisors of that particular Assistant Director Office. When you are making a request for a higher-level review you should be sure to inform the SEC staff members who performed the initial review.

Frequently Asked Questions

  • What if I don't qualify for Form S-3?

Since the amendment of the rules in 2011, some companies that are not able to meet the transaction requirements can continue to use short-form registration under the amendment's temporary grandfather provision. This allows a company to use Form S-3 for 3 years from the date of the amendments so long as the company discloses that it has reasonable belief that it would have been eligible to use the form before the rule was amended.

If you need help with Form S-3, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from laws schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.