In addition to quantitative requirements, companies that apply to list and that are listed on The NASDAQ Stock Market must comply with certain qualitative or corporate governance requirements. This section briefly highlights some of the most frequently asked questions arising from these requirements. However, for complex issues or transactions, the company should contact its Listing Qualifications analyst directly to discuss these requirements in further detail or submit a request for written interpretation. NASDAQ publishes summaries of previously issued letters of interpretation. See Staff Interpretative Letters for further information.

NASDAQ also has over 200 Frequently Asked Questions that discuss its rules, policies and procedures for potential listing applicants and companies that are listed on The NASDAQ Stock Market. To view these FAQs, please click here.

For additional assistance, please contact the Listing Qualifications Staff at +1 301 978-8008.

Corporate Governance Listing Rules - 5600 Series

Corporate Governance FAQs
(To view or download all of the Corporate Governance FAQs)

Corporate Governance FAQs by Subject Matter

Corporate Governance Rules & The Interpretative Process

Annual Shareholder Meetings

Audit Committee

Certification

Code of Conduct

Compensation Committee

Controlled Companies

Corporate Governance Deficiencies & Cure Periods

Distribution of Annual & Interim Reports

Executive Sessions

Independent Directors

Majority Independent Board

Nominating Committee

Non-U.S. Companies

Notification of Material Non-Compliance

Proxy Filing & Solicitation

Quorum

Related Party Transactions

Shareholder Approval - Acquisitions

Shareholder Approval - Alternative Outcomes & Defective Share Caps

Shareholder Approval - Definitions

Shareholder Approval - Equity Compensation

           General

           Applicability

           Formula & Evergreen Plans

           Materiality of Amendments

           Exceptions - General

           Exceptions - Tax Qualified Plans

           Exceptions - Mergers & Acquisitions

           Exceptions - Inducement Grants

Shareholder Approval - Financial Viability Exception

Shareholder Approval - Private Placements

Voting Rights

Corporate Governance Rules & The Interpretative Process

• What provisions of the Listing Rules relate to the corporate governance of NASDAQ issuers?
• Does NASDAQ provide interpretative material regarding its corporate governance rules?
• Who should a company and/or its counsel contact to discuss the corporate governance requirements?
• How does a company or its counsel obtain a definitive interpretation on a corporate governance issue?
• What information and supporting documentation should be included with the company's request for interpretative guidance?
• What are the fees and timetable for a corporate governance interpretation?
• May a company withdraw a request for a written interpretation?
• Does NASDAQ review a company's past corporate governance activities upon an application to list on The NASDAQ Stock Market?

Annual Shareholder Meetings

• Must a NASDAQ company hold an annual shareholder meeting?
• Are any companies not subject to the annual meeting requirement?
• Is a company required to hold an annual shareholder meeting even if the only listed security is non-voting common stock?
• When must a company hold its annual shareholder meeting?
• Can the annual shareholder meeting be held via the web?
• Must a company provide notice to NASDAQ about its shareholder meeting?
• My company recently listed on NASDAQ. When must we hold our first annual meeting?
• What is the effect of a change in a company’s fiscal year-end on its annual shareholder meeting requirement?
• How does the annual meeting Rule apply to a company following a business combination?

Audit Committee

• Is a company required to submit its audit committee charter to NASDAQ?
• Does a person who satisfies the Securities and Exchange Commission's requirement of an audit committee "financial expert" satisfy NASDAQ's "financial sophistication" requirement?
• Must a company obtain approval from NASDAQ in order to utilize the "exceptional and limited circumstances" according to Listing Rule 5605(c)(2)(B)?
• Can a company rely on the "exceptional and limited circumstances" provision as set forth in Listing Rule 5605(c)(2)(B) if it has three or more independent directors on its audit committee?
• What happens if a company no longer complies with the audit committee composition requirement because an audit committee member resigns?
• What happens if a company no longer complies with the audit committee composition requirement because an audit committee member can no longer be considered independent?
• A NASDAQ-listed company is a bank holding company. Can the company's audit committee include persons who are directors of the subsidiary operating bank, but who are not directors of the listed holding company?
• For purposes of Listing Rule 5605(c)(2)(A), what does it mean to have "participated in the preparation of the financial statements" of the company?
• What notification is required to be given to NASDAQ if a company no longer complies with the audit committee composition requirement of Listing Rule 5605(c)(2)(A)?

Certification

• Are companies required to submit a Corporate Governance Certification Form annually?

Code of Conduct

• What disclosure is required for a waiver to the Code of Conduct for an officer or director that extends beyond one year?

Compensation Committee

• What are NASDAQ's requirements for the composition of a listed-company's compensation committee?
• A company's board of directors consists of a majority of independent directors. May the whole board serve as a compensation committee?
• Must a company certify that it has established a charter for its compensation committee?
• Is a company required to submit its compensation committee charter to NASDAQ?
• How many directors are required to serve on a compensation committee?

Controlled Companies

• What is a "Controlled Company"?
• What exemptions to NASDAQ's corporate governance policies are provided to a Controlled Company?
• Does a company that is eligible to rely on the "Controlled Company" exemption have to disclose if it chooses not to rely on the exemption?
• If a company ceases to be a Controlled Company, when must it comply with the corporate governance requirements?

Corporate Governance Deficiencies & Cure Periods

• Under what circumstances is a cure period provided for corporate governance deficiencies?
• Under what circumstances is a cure period not provided to remedy corporate governance deficiencies?

Distribution of Annual & Interim Reports

• Are NASDAQ-listed companies required to provide annual reports to their shareholders?
• May a listed company satisfy NASDAQ's annual report requirement by posting a copy of the report on its website?
• When does NASDAQ require that the annual report be available?
• Does NASDAQ define the term "reasonable period of time" for purposes of an issuer responding to a shareholder's request for a hard copy of the annual report?
• Is a company required to send a copy of its annual report to NASDAQ?
• Are companies required to provide NASDAQ with the "glossy" version of their annual report?
• If an annual or interim report is filed via EDGAR, does the company have to send NASDAQ a paper copy?
• Are NASDAQ-listed companies required to distribute interim reports to their shareholders?
• Is the interim report considered to have been made available for purposes of Listing Rule 5250(d) if it is posted on the issuer's website?
• Are the requirements different for a foreign private issuer that does not file interim reports?
• Does a company have to provide NASDAQ with a copy of its interim reports?
• Is a NASDAQ-listed company required to disclose the receipt of a "Going Concern" opinion from its independent auditors in the financial statements contained in the Form 10-K (or its equivalent)?
• What are the requirements for Transition Reports?

Executive Sessions

• Does NASDAQ require "executive sessions" of the Independent Directors?
• How often must the independent directors hold executive sessions?
• Are the independent directors at a Controlled Company required to hold executive sessions?

Independent Directors

• How does NASDAQ define an "Independent Director"?
• How does NASDAQ define a "Family Member"?
• How does NASDAQ define "Executive Officer"?
• How does NASDAQ define a "Parent or Subsidiary"?
• How does NASDAQ define a "Controlled Company"?
• Does ownership of a significant interest in the company preclude a board member from being "independent"?
• If an entity is acquired by, or merges with, a NASDAQ-listed company, may a former officer of the acquired entity be eligible to qualify as an independent director of the combined entity?
• How does NASDAQ apply the look back set forth in Listing Rule 5605(a)(2)(D)?
• Does an option awarded for consulting service contribute to the $120,000 limit in Listing Rule 5605(a)(2)?
• Do lawyers, whose firms provide services to the NASDAQ-listed company, fall under the $120,000 compensation test of Listing Rule 5605(a)(2)(B) or the 5%/$200,000 indirect payment test of Listing Rule 5605(a)(2)(D)?
• Must a company obtain approval from NASDAQ in order to utilize the "exceptional and limited circumstances" according to Listing Rule 5605(c)(2)(B)?
• What notification is required to be given to NASDAQ if a company no longer complies with the independent director requirement of Listing Rule 5605(b)(1)?

Majority Independent Board

• Does NASDAQ have requirements for listed companies regarding the composition of the Board of Directors?
• Does NASDAQ have requirements for listed companies regarding the size of the Board of Directors?
• What types of companies do not have to have a majority independent Board of Directors?
• Does NASDAQ have any restrictions on the number of boards on which a director may serve?

Nominating Committee

• What are NASDAQ's requirements for the composition of a listed-company's nominating committee?
• A company's board of directors consists of a majority of independent directors. Can the whole board serve as a nominating committee?
• Must a company certify that it has established a charter for its nominating committee?
• Is a company required to submit its nominating committee charter to NASDAQ?
• How many directors are required to serve on a nominating committee?
• Is the nominating committee required to approve director nominations that legally belong to a third party?
• If a company is subject to a binding obligation requiring directors to be selected in a manner contrary to Listing Rule 5605(e), does it need a nominating committee?

Non-U.S. Companies

• How do the corporate governance requirements of Listing Rule 5600 apply to foreign private issuers?
• How do the corporate governance requirements of Listing Rule 5600 apply to non-U.S. companies that are not foreign private issuers?
• What is the definition of "home country"?
• How does a foreign private issuer utilize the provisions of Listing Rule 5615(a)(3)?
• Can NASDAQ provide an example of the letter that should be sent to NASDAQ from the Company's home country counsel?
• If a foreign private issuer received an exemption from NASDAQ under NASDAQ's prior exemptive rules, is it required to submit a letter relating to its non-conforming practices?
• If a non-U.S. company that is not a foreign private issuer was previously granted an exemption, can it continue to rely on the exemption?
• What if a company that is relying on an exemption or is utilizing the non-conforming practices provision of Listing Rule 5615(a)(3) does not provide the required disclosure?
• Are there provisions of Listing Rule 5600 with which a foreign private issuer must comply?
• Are foreign private issuers required to comply with NASDAQ's voting rights requirements, set forth in Listing Rule 5640 and Interpretative Material 5640?

Notification of Material Non-Compliance

• Is a company required to notify NASDAQ when it becomes non-compliant with one of the corporate governance rules, as set forth under Listing Rule 5600 Series?

Proxy Filing & Solicitation

• Are NASDAQ-listed companies required to solicit proxies for shareholder meetings?
• Can a company provide an information statement instead of a proxy statement in connection with its annual shareholder meeting?
• Does a company need to file a hard copy of its proxy statement with NASDAQ?
• Does NASDAQ permit the use of Electronic Media to solicit proxies?

Quorum

• What is NASDAQ’s minimum quorum requirement?
• In the case of a company having multiple classes of voting common stock, should the quorum be based on the number of shares or the number of votes present?

Related Party Transactions

• What is a related party transaction?
• What is NASDAQ’s requirement regarding related party transactions?
• Do related party transactions have to be approved by the audit committee or a comparable body?
• Do related party transactions have to be reviewed in advance?
• What is considered a "comparable body of the board of directors" for review of related party transactions?

Shareholder Approval - Acquisitions

• Is shareholder approval required for an acquisition of stock or assets of another company?
• Would NASDAQ consider the effect of an "earn-out" or similar provision when calculating the maximum potential share issuance in connection with the acquisition of stock or assets of another company?
• What factors does NASDAQ consider when determining whether to aggregate the shares issued in separate acquisition transactions for purposes of determining whether the threshold for shareholder approval has been triggered?
• When a company completes a private placement to finance an acquisition, is the analysis of whether shareholder approval is required made, pursuant to Listing Rule 5635(d), the private placement rule, or Rule 5635(a), the acquisition rule?
• Does NASDAQ require a company to file a Notification: Listing of Additional Shares in connection with an acquisition?
• If the shares issued in connection with the acquisition are priced at or above the market value on the date the agreement is entered into, does the company still need shareholder approval?

Shareholder Approval - Alternative Outcomes & Defective Share Caps

• What is an alternative outcome?
• What is the effect of a transaction containing an alternative outcome?
• Is a rescission an alternative outcome?
• Can a convertible security be issued prior to a shareholder vote, if the transaction involves an alternative outcome?
• Must a conversion cap apply for the life of the transaction?

Shareholder Approval - Definitions

• A company has issued and subsequently repurchased shares of its common stock. The repurchased shares are now considered treasury shares. Are these shares considered outstanding?
• If a company issues a security with special voting rights, such as the right to appoint a director, but not general voting rights, does that security contribute towards the calculation of whether the company is issuing voting power equal to or in excess of 20% of the voting power outstanding before the issuance under Rule 5635?

Shareholder Approval - Equity Compensation

General

• Does NASDAQ require shareholder approval of equity compensation plans?
• How does a company request an interpretation of NASDAQ's rules?
• Is a company required to notify NASDAQ of equity compensation plans and arrangements pursuant to the Listing of Additional Shares process?
• What is the Listing of Additional Shares notification requirement for equity awards issued as an inducement material to a person accepting employment with the company?
• Are non-U.S. companies required to notify NASDAQ of equity compensation plans and arrangements pursuant to the Listing of Additional Shares process?

Applicability

• NASDAQ adopted its current rules regarding shareholder approval of equity compensation plans on June 30, 2003. Do plans adopted prior to that date require additional shareholder approval?
• Is there an exception for de minimis issuances under Listing Rule 5635(c)?
• Are issuances of treasury shares subject to Listing Rule 5635(c)?
• Who is considered to be a consultant for purposes of Listing Rule 5635(c)?
• Can a company establish and issue shares from an equity compensation plan or arrangement before seeking shareholder approval?
• May a company grant stock awards subject to obtaining subsequent shareholder approval?
• Does NASDAQ's shareholder approval requirement for equity compensation plans or arrangements apply to foreign private issuers?
• Is NASDAQ's requirement for shareholder approval of equity compensation plans or arrangements applicable to initial listings?

Formula & Evergreen Plans

• What is a formula plan?
• What is an evergreen plan?
• When is shareholder approval required of formula or evergreen plans?

Materiality of Amendments

• What is considered a "material" amendment to an existing equity compensation plan or arrangement?
• What is considered to be a "repricing"?
• Does a "value for value" exchange require shareholder approval?
• Would it be a material amendment to change the method of determining the exercise price for newly granted stock options?
• Would it be a material amendment for a company to buy back outstanding awards for cash?
• Is a provision in a plan that generally allows for a plan administrator to "modify or amend" an award sufficient to permit a repricing or option exchange without shareholder approval absent any additional, specific authority?
• Is an increase in the number of shares available under a plan considered a material amendment?
• Consider a plan that provides for periodic automatic awards of specific number of options, for example, annual awards of 10,000 options. Is it a material amendment to increase the awards to 15,000?
• Does a change in the vesting schedule of stock option or other equity awards require shareholder approval?
• Is an amendment to a plan to extend the term of an option considered a material amendment?
• Is shareholder approval required of a plan or arrangement that permits an employee or director to use cash payments from the company to purchase stock at market price?
• Is shareholder approval required to add stock-settled Stock Appreciation Rights ("SARs") to a plan that provides only for stock options?
• Are cash settled SARs subject to Listing Rule 5635(c)?
• Is shareholder approval required to add Restricted Stock Units ("RSUs") to an equity compensation plan that allows for the issuance of restricted stock?
• Is the addition of a "cashless exercise" feature to an option plan a material amendment?
• What is considered to be a material expansion of the class of participants?

Exceptions - General

• Are there any exceptions to NASDAQ's shareholder approval requirement for equity compensation?

Exceptions - Tax Qualified Plans

• Does NASDAQ require shareholder approval of "tax qualified, non-discriminatory employee benefit plans"?
• What is a "parallel nonqualified plan"?
• Does NASDAQ require shareholder approval of "parallel nonqualified plans"?

Exceptions - Mergers & Acqusitions

• Do plans or arrangements involving a merger or acquisition require shareholder approval under Listing Rule 5635(c)?
• Are the shares that are issuable as a result of the conversion of the target's outstanding awards and the assumption of the target's equity plans included in determining whether shareholder approval is required under Listing Rule 5635(a)?
• Would a plan or arrangement adopted in contemplation of a merger or acquisition be considered as a pre-existing plan for purposes of the exception from the shareholder approval requirement?
• If the target of a merger or acquisition has a pre-existing evergreen plan that is assumed in the transaction, when will shareholder approval be required for that plan?

Exceptions - Inducement Grants

• Is shareholder approval required of an equity award to a new employee?
• Is the inducement exemption available to induce a member of the board of directors to enter into employment?
• Is the inducement exemption available to induce someone to become a consultant to the company?
• Is the inducement exemption available to induce a consultant to become an employee?
• What is "bonafide period of non-employment"?
• What is required for a company to rely on the exception from the shareholder approval requirement for an equity compensation inducement award?
• For purpose of the required disclosure of inducement awards, what is meant by "promptly"?
• What details must a company include in the press release disclosing its reliance upon the shareholder approval exception for an inducement grant?
• Can a company disclose the combined size of inducement awards made to a number of employees?
• May a company use a Form 8-K to disclose an inducement grant in lieu of a press release?
• May a company rely on the inducement exception for a grant made immediately after an individual is hired if the grant was not discussed or negotiated in connection with the hiring process?
• May a company adopt a plan without shareholder approval that would be used solely for inducement awards?
• Is shareholder approval required to amend an inducement award for which the company did not receive shareholder approval?

Shareholder Approval - Financial Viability Exception

• Is an exception from the shareholder approval requirements available for a company in financial distress?
• How does a company request a financial viability exception?
• What should the company include in its request for a financial viability exception?
• What are examples of factors the company should address?
• Is the company's audit committee required to approve reliance on a financial viability exception?
• What disclosure is required of a company that receives a financial viability exception?
• Can a company that receives a financial viability exception issue any securities in the transaction prior to the end of the ten-day notice period?
• Can NASDAQ waive or shorten the notice period?
• Can a company initiate the 10-day notice period by mailing the notice to shareholders prior to receiving approval of its exception request from NASDAQ?

Shareholder Approval - Private Placements

• For purposes of NASDAQ's shareholder approval rules, what is "market value"?
• How can I find the appropriate consolidated closing bid price?
• For purposes of NASDAQ's shareholder approval rules, what is "book value"?
• Can a book value be used which is more recent than that reflected in the last SEC periodic filing?
• Does a sale of securities in a private placement at a discount to the market value to officers, directors, employees, or consultants require shareholder approval under Listing Rule 5635(c)?
• How is it determined whether securities that are convertible into or exercisable for common stock are issued at a discount to market value?
• What is the effect of an anti-dilution provision for purposes of determining whether an issuance is at a discount?
• When an issuance includes common stock (or the equivalent) issued at a discount and warrants, are the shares underlying the warrants aggregated with the common stock portion?
• When an issuance includes common stock (or the equivalent) and warrants, is it necessary to attribute a value to warrants for purposes of determining whether the common stock portion is at a discount?

Voting Rights

• Does NASDAQ have a voting rights rule?
• Does convertible preferred stock that votes on an "as converted basis" comply with the NASDAQ Voting Rights Policy?
• Can a company continue to issue additional amounts of higher voting stock under a dual class structure?
• What is "an existing dual class structure"?
• What is the effect of shareholder approval on a transaction, which violates NASDAQ's voting rights rule?
• What happens if a company violates NASDAQ’s Voting Rights Rule and Policy?
• Does NASDAQ review a company’s voting structure during the initial listing review process?
• Do the voting rights of Listing Rule 5640 requirements apply to NASDAQ non-U.S. issuers?