Congress: let startups stay private forever?

New bill expands shareholder limit to 1,000 and excludes many of startups' primary investors

Maybe that Facebook IPO isn’t coming after all.

A few state representatives, including David Schweikert (R-AZ) and Jim Himes (D-CT), are drafting a bill to present to Congress that could change IPO plans for a lot of booming tech startups, including Facebook.

Under the Securities Exchange Act of 1934, private companies with 500 or more shareholders must disclose financial data in the same way that all public companies do. Revenues, profits, assets, everything must be visible to competitors and investors alike, and all without the benefits of selling tons of shares on the public market in an exciting initial public offering.

The revised rules, Forbes reports, would expand the limit to 1,000 shareholders, giving private companies much more leeway before having to disclose finances. Not only that, but no longer would stockholding employees and accredited investors, including venture capital firms and mutual funds, count toward that limit. Only unaccredited investors could make the company reach its limit.

If the bill were signed into law, most small VC-backed startups could stay private for as long as they’d like. And red-hot, larger private companies like Facebook and Zynga would have a lot more time to toy with before hitting the public market.

The last time Facebook had anything official to say about the issue was back in January, once it had sealed its $1.5 billion funding round from Goldman Sachs and DST:

Does this investment mean that Facebook will have more than 500 shareholders?

Even before the investment from Goldman Sachs, Facebook had expected to pass 500 shareholders at some point in 2011, and therefore expects to start filing public financial reports no later than April 30, 2012.

Nothing there necessarily suggests the IPO would come around that same period, but most read it that way. Early Facebook investor and sitting board member Peter Thiel had previously said Facebook wouldn’t IPO until late 2012 at the earliest, while reports spilling out this week say that offering might actually come in early 2012. And at a $100 valuation.

In the end, there are a number of factors that go into deciding whether a company should go public. While in many cases, an IPO is the best way for early shareholders to receive a nice return on their investment, that could be counteracted by the company’s desire to follow its own course and answer to as few voices as possible.

And with Facebook, you definitely get the sense that founder and CEO Mark Zuckerberg has a clear vision of where he wants to take the company.