Legal Definitions - all-holders rule

The all-holders rule is a regulation established by the Securities and Exchange Commission (SEC), a U.S. government agency responsible for protecting investors and maintaining fair and orderly securities markets. This rule ensures fairness and equal treatment for investors in two specific situations involving company shares:

• First, it prevents a company from making a public offering of new shares or other securities to only a select group of its existing shareholders within a particular class. If a company decides to offer new shares, it must make that offer available to all individuals or entities who own that specific type of share.
• Second, when an individual or company attempts to acquire control of another company by making a "tender offer" (an offer to buy shares directly from shareholders), this rule requires that the offer be extended to all shareholders of the target company, not just a chosen few.

Essentially, the all-holders rule ensures that no shareholder is unfairly excluded from opportunities to buy new shares or sell their existing shares during certain corporate transactions.

Here are some examples to illustrate the all-holders rule:

• Example 1: New Share Offering

  Imagine "Tech Innovations Inc." wants to raise capital by issuing new preferred shares. The company has thousands of existing preferred shareholders. Tech Innovations initially considers offering these new shares only to its largest institutional investors, believing these investors would be more likely to purchase substantial blocks of shares quickly.

  The all-holders rule would prohibit Tech Innovations Inc. from doing this. If they make a public offering of these new preferred shares, they must offer them to all existing preferred shareholders, not just a select group of large institutions. This ensures that every holder of that class of shares has an equal opportunity to participate in the new offering.

• Example 2: Company Takeover Bid

  "Global Conglomerate Holdings" decides it wants to acquire "Regional Manufacturing Co." Global Conglomerate announces a tender offer, proposing to buy all outstanding shares of Regional Manufacturing Co. at a premium price. Initially, Global Conglomerate considers only sending the offer to shareholders who own more than 1% of Regional Manufacturing Co., thinking that smaller shareholders might not be worth the administrative effort.

  The all-holders rule mandates that Global Conglomerate Holdings must extend its tender offer to every single shareholder of Regional Manufacturing Co., regardless of how many shares they own. This prevents Global Conglomerate from selectively buying shares and ensures that all shareholders have the same opportunity to sell their shares at the offered price during the takeover attempt.