Twitter And 37 Other Internet Startups Are Fighting The SEC’s “500 Shareholder” Rule

They might not be your typical working-out-of-a-garage operations, but Twitter and Gilt Groupe are fighting to ease restrictions on startups.

Specifically, they’ve joined forces with 37 other internet-based startups to urge Congress to pass new legislation that would remove the requirement that businesses reveal their financial data when they reach 500 or more shareholders.

As it stands, when a company reaches 500 shareholders, they must disclose all of their financial data to the SEC. And this is seen by those opposing the rule as effectively forcing them into going public, possibly before they’re ready to.

Bloomberg reports that Twitter’s CEO Dick Costolo is part of the group who want to see this rule changed.

The CEOs and top executives from the 38 internet startups opposing this rule have issued a letter to members of Congress, stating in part that “…the 500 shareholder rule is outdated, overly restrictive, and limits U.S. job creation and American global competitiveness.”

They are asking that the SEC increase the limit to 1,000 shareholders.

As Bloomberg explains, a fast-growing startup like Twitter often offers stock options to attract new and talented employees. They might hit the 500 shareholder number this way, and are often not ready for the public scrutiny that comes with revealing their financials.

Gilt Groupe CEO Kevin Ryan explained why he’s onboard with the others in asking to change this legislation:

“The current legislation doesn’t reflect what is going in today’s economy and has unintended consequences. Because companies don’t want to trigger the 500-shareholder rule, the solution they take right now is they stop giving out options.”

(Top image: 3DProfi via Shutterstock)