The SEC recently said it won’t derail initial public offerings if a company’s bylaws or charter bar shareholders from bringing lawsuits in federal court. Neither federal law nor SEC rules expressly prohibit shareholder binding arbitration, but the agency in the past has threatened to derail IPOs on grounds that class action waivers aren’t in the “public interest.” […]
Enter the SEC, which is now correcting its earlier signal. “The Commission is not a merit regulator that decides whether a company’s particular method of resolving disputes with its shareholders is ‘good’ or ‘bad,” SEC Chair Paul Atkins said. He added that arbitration provisions are consistent with the Supreme Court’s interpretation of the Federal Arbitration Act.
Some companies may still choose to allow shareholder lawsuits. Delaware—where many companies are incorporated—recently amended its corporate laws to restrict binding arbitration clauses. But credit to Mr. Atkins for eliminating the plaintiff-attorney veto on IPOs.
