The Securities and Exchange Commission (SEC) is undertaking a historic effort to redraw the boundary between public and private companies. After years of watching—and sometimes encouraging—the explosive growth in less tightly regulated private markets and the proliferation of so-called “unicorns,” the agency is now reasserting its authority.

A key arrow in the agency’s regulatory quiver is its authority under section 12(g) of the Securities Exchange Act of 1934 (Exchange Act) to force private companies to “go public” when they reach a certain size. The provision requires any company whose shares are “held of record” by more than 2,000 persons to take on the obligations imposed by federal securities regulations on public companies, including extensive disclosure. But today, this 2,000 shareholder trigger has no real constraining effect; because a single holder “of record” can easily (and often does) stand in for tens, hundreds, or even thousands of real beneficial owners, private companies can easily raise endless amounts of capital without tripping the threshold.

Now, the SEC wants to close this loophole by mandating a “look-through” to the beneficial owners of the securities for purposes of the shareholder count. The details remain to be seen, but the agency is apparently eager to significantly curtail the ability of private companies to grow outside of the regulatory scrutiny that accompanies public company status.

This paper proceeds in five Parts. Part I provides a brief background on the rise of private markets and the SEC’s budding efforts to reassert its authority in this domain. Part II examines the text and legislative history of section 12(g) and shows how Congress limited the agency’s authority to mandate a look-through for purposes of the shareholder count. Part III considers various possible interpretations of the SEC’s authority to mandate a look-through and shows that the more limited interpretations of this authority are the most reasonable. Part IV shows that the limited interpretations presented in Part III are also consistent with the small number of look-throughs previously authorized by the agency. Part V shows how these limited interpretations might significantly restrict the agency’s ability to fundamentally redraw the lines between public and private companies.