NYSE MKT, Controlled, and Smaller Reporting Companies

The NYSE MKT exempts “controlled companies” from the requirement that a majority of the board of directors and that all the compensation, audit and nominating committee members be independent. A “controlled company” is one in which over 50% of the voting power is held by an individual, a group or another company.

The NYSE MKT also exempts smaller reporting companies from the full governance standards. A smaller reporting company is only required to have a board of directors in which 50% are independent, and is only required to have 2 members on its audit committee though both must be independent.

Limited partnerships and companies in bankruptcy are exempted from the independence requirements.

NASDAQ has similar exemptions from its corporate governance and independence standards for controlled and smaller reporting companies. NASDAQ also defines a controlled company as one in which over 50% of the voting power is held by an individual, a group or another company.

Both NASDAQ and the NYSE MKT require that a company relying on the controlled company exemption provide information in its annual report and proxy statements as to the exemption including how its ownership results in the company qualifying as controlled. Where the company claims control by a group to satisfy the exemption, that group must have filed a Schedule 13D as a group related to its control ownership.

Both NASDAQ and NYSE MKT provide for a phase in or transition period for full corporate governance compliance for companies ceasing to be a controlled company or smaller reporting company. Although each has particular requirements as to when certain aspects of governance and in particular independence have to be met, starting from meeting certain standards as of the date that the company ceases to be either controlled or a smaller reporting company, generally controlled companies have a total of one year to fully comply and smaller reporting companies have a total of six months.

Both NASDAQ and the NYSE MKT also have full governance phase in schedules for companies completing an initial public offering.