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When a company applies for a listing on Nasdaq, it must adhere to all relevant listing requirements at the time of listing. However, there are specific provisions that offer some flexibility in certain circumstances.
For companies undertaking an initial public offering (IPO), Nasdaq aligns with the Securities Exchange Act by providing a grace period. This grace period extends up to one year from the initial trading date and is specifically designed to accommodate the completion of certain corporate governance requirements. During this time, a company may work towards meeting the Nasdaq standards related to the composition of its board of directors and its committee structures.
Specifically, the grace period allows for the following:
- Independent Directors: Companies are given time to secure the required number of independent directors for their board. This is an essential criterion for compliance with Nasdaq's corporate governance standards.
- Audit, Compensation, and Nominating Committees: The grace period also permits companies to establish and fully operationalize their audit, compensation, and nominating committees in accordance with Nasdaq's requirements. These committees play a crucial role in overseeing various aspects of the company's operations and ensuring compliance with regulatory standards.
During this grace period, the company must demonstrate active progress toward meeting these requirements. Failure to comply with these standards within the grace period may result in the company facing potential consequences, including but not limited to, suspension or delisting from Nasdaq.
Overall, while Nasdaq mandates that companies comply with all listing requirements upon their initial listing, the provided grace period is a critical aspect of Nasdaq's approach, allowing newly listed companies to align with corporate governance standards as they ramp up their operational and compliance frameworks.
