Rule 145
Rule 145 is an SEC rule treating specified security reclassifications, mergers, consolidations and asset-transfer transactions submitted for holder vote or consent as involving an offer or sale of securities.
How it works
Rule 145 rejects the idea that every qualifying business combination is outside Securities Act sale concepts merely because investors exchange existing securities through a corporate transaction. The rule covers specified reclassifications, mergers or consolidations, and asset transfers involving securities consideration and distribution mechanics. Securities issued in covered registered transactions can use Forms S-4, F-4 or N-14, while otherwise available statutory exemptions remain available. Special underwriter and resale provisions apply when a party to the transaction is a shell company other than a business-combination-related shell company.
The rule focuses on a new investment decision
When holders must decide whether to accept a new or different security in exchange for an existing security, Securities Act protections can apply.
Specified reclassifications are covered
Substituting one security for another through a holder-approved reclassification can fall within the rule, subject to stated exclusions.
Stock mergers and similar combinations are a core application
Covered transactions can involve target securities becoming or being exchanged for securities of another person.
Specified asset transfers can also be covered
The rule addresses asset transfers for securities consideration when dissolution or distribution conditions are present.
Worked example: stock-for-stock merger
Target holders vote to exchange each old share for 0.6 shares of the acquirer. The securities issuance can be registered on Form S-4 if no exemption is used.
Shell-company transactions receive special resale treatment
Rule 145(c) and (d) can deem specified parties or affiliates underwriters and then provide resale conditions tied to Rule 144.
Common mistakes
Assuming every merger is a Rule 145 transaction; treating cash consideration as a securities issuance; ignoring available statutory exemptions; and applying the shell-company underwriter rules to every ordinary operating-company merger.
Example
A public company merger requires target shareholders to vote on a transaction in which their shares will be exchanged for shares of the acquirer. Rule 145 treats the shareholder investment decision as involving an offer or sale for Securities Act purposes.
Example
A public company merger requires target shareholders to vote on a transaction in which their shares will be exchanged for shares of the acquirer. Rule 145 treats the shareholder investment decision as involving an offer or sale for Securities Act purposes.
Professional note
Rule 145 is not a blanket requirement that every merger register securities. Cash-only transactions and transactions supported by another valid Securities Act exemption can fall outside the registration path addressed by the rule.
Related terms
- Registration Statement
A registration statement is a filing with the SEC that provides required disclosures when a security or securities offering is registered under federal securities laws.
- Strategic Buyer
A strategic buyer is an operating company or corporate acquirer that purchases another business because the target may create strategic value through products, customers, technology, geography, cost synergies or other operating benefits.
- Section 4(a)(1)
Section 4(a)(1) is the Securities Act transactional exemption for transactions by persons other than an issuer, underwriter or dealer.
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