“Thank you for taking my question. Does the Sarbanes-Oaxley Act of 2002 have any protections for shareholders of companies that are privately held? Or, have there been any extensions of the SOA of 2002 or related rulings that protect shareholders of private companies?”
The Sarbanes-Oxley Act of 2002 (sometimes called “SOX”) is an assortment of corporate governance reforms designed to protect investors by imposing new financial reporting, disclosure and governance requirements on public companies. Most of the SOX requirements apply only to publicly-held companies, but others expressly apply to all companies whether public or private. There are three main areas where a private company might be most significantly felt: when a private company is preparing to go public (an Initial Public Offering, or IPO); when a private company is being purchased by or is merging with a publicly-traded company; and, when a private company issues registered debt securities.
Certain SOX provisions affect liability and increase penalties for all companies, public and private, for fraud and other activities that interfere with enforcement of federal laws and regulations, including criminal liability for the destruction or falsification of documents or other government-required reporting, and increased liability for retaliation against whistleblowers.
Most importantly, SOX has set a much higher benchmark for corporate governance, regardless of whether a company is public or private. Many private companies are already modifying their corporate governance procedures to mirror those in public companies, especially under pressure from venture capitalists and institutional investors who might hold stakes in certain private firms. Adopting those practices earlier can make future IPOs or mergers much easier.