A few years ago, in response to the horrid corporate scandals, Congress passed the most sweeping securities legislation since the 1930s: the Sarbanes-Oxley Act. There certainly were good intentions, and swift action was necessary to rebuild confidence in the U.S. financial system. But, to quote Otto von Bismarck: "People who enjoy eating sausage and obey the law should not watch either being made."
Ironically, while Sarbanes-Oxley is meant to help shareholders, we are seeing examples of the opposite result. Many small-cap companies, such as Homestore
Another impact: Prospective IPO candidates may stay private. Thus, we may be missing the next Microsoft
And another impact: Some public companies may decide to go private. This is not necessarily bad for shareholders, as the going-private transaction is usually at a premium to the current stock price. For example, this was the case with Cox Communications
However, there is a "back-door" approach to the process. It goes back to a relatively obscure Securities and Exchange filing: Form 15. Essentially, a company can deregister from its stock exchange if it can certify that it has fewer than 300 shareholders, or fewer than 500 shareholders if the company's total assets do not exceed $10 million.
Simply put, the CEO said that the move was in response to the burdens of being a public company, which he called "excessive." He even said that the shareholders will be "much better served." Then again, the stock price plunged 7.64% to $7.50. If a company has a small market cap (below $50 million), low trading volume, and a small number of shareholders, there certainly is a risk of a company filing a Form 15. Shareholders should be on guard for this possibility.
Fool contributor Tom Taulli does not own shares in any of the companies mentioned in this article.