Reaching 500 shareholders can be much easier these days, and that could mean public disclosure and SEC reporting requirements. As stated by Russ Banham's article in the March 2011 edition of CFO Magazine, "Going Public by Accident", companies such as Facebook may have crossed that blurry line. Between stock option plans to employees and investment pool structures, these equity plans muddy the waters. And with the added responsibility of public reporting comes the risk of litigation from shareholders if the company's value decreases.
A strategy to avoid this scanerio is filing for an exemption to the 500 shareholder limit. In addition, the SEC still has not issued an official ruling on whether investment pools count as multiple shareholders. If a company still finds its self as an unintentional public entity, the SEC gives 120 days after the end of the fiscal year to register as a reporting company.
