Memorandum: Obligations of Directors and Officers under Section 16

Summary

This is a memorandum template from counsel to the directors and officers of a public company advising them of their obligations under Section 16 of the Securities Exchange Act of 1934, as amended (15 U.S.C. § 78p) (Exchange Act) with respect to their ownership of and transactions in the company's securities. These obligations typically arise in connection with a company's initial public offering (IPO) but apply to the directors and officers (as defined in Rule 16a-1(f) under the Exchange Act (17 CFR 240.16a-1(f)) of all issuers (except foreign private issuers, as provided in Rule 3a12-3(b) under the Exchange Act (17 CFR 240.3a12-3(b)) that have a class of equity securities registered under Section 12 of the Exchange Act (15 U.S.C. § 78l). This template includes practical guidance, drafting notes, and optional clauses. For assistance in determining who is subject to Section 16, see Section 16 Forms: Guidance for Completing, Filing, and Amending. For information about complying with the reporting requirements of Section 16(a), and advice and guidance on preparing the filing forms, see Section 16 Forms: Guidance for Completing, Filing, and Amending, and Section 16 Compliance, Insiders, and Liability. For information about liability under the short-swing profit rules of Section 16, see Section 16 Forms: Guidance for Completing, Filing, and Amending. For information about Section 16's prohibition against short sales by directors and officers, see Section 16 Forms: Guidance for Completing, Filing, and Amending. For a slide presentation to the board of directors regarding the various aspects of Section 16, see Section 16 Training for Public Companies: Beneficial Ownership Reporting and Profit Disgorgement Presentation.