As a privately held company, Facebook can avoid some of the woes that publicly traded companies are facing during this major economic downturn. and Facebook would like to keep things that way. In a recent ruling from the Securities & Exchange Commission (SEC), Facebook has been deemed exempt from having to disclose financial results publicly, reports BusinessWeek.
According to the Securities & Exchange Act of 1934, a privately held company is to disclose financial results publicly after reaching more than 500 stockholders and $10 million in assets. With Facebook hiring a slew of new employees in the past two years and often offering the new employees stock options, Facebook is getting dangerously close to the 500 stockholders mark. The pressure is on. Or is it?
Facebook’s counsel Fenwick & West wrote the SEC a 10-page letter outlining that the stock given to employees remains inside Facebook, and the employees are not paying for it. Last month, the SEC agreed with Facebook’s letter, handing down an exemption for Facebook. Why is this important? It buys Facebook some time, and some wiggle room in our current economic market.
Even as Facebook appeared to be losing some of its executives earlier this year, having more financial stability than other publicly traded companies that are more vulnerable to our economy means that Facebook may also be in a better position to retain talented executives at this point in time. As BusinessWeek also points out, a similar SEC situation helped force Google to go public in 2004.
So this financial “independence” is important for Facebook , as the company continues to outline its future goals in terms of features and profitability. Keeping good talent around means that the road map for Facebook could be more promising, especially as many changes are already taking place in order to handle the changing market and its effects on things like online advertising.