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SEC loosens reporting, disclosure standards for nearly 1,000 public companies
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Category: SEC, public companies, smaller reporting company

SEC loosens reporting, disclosure standards for nearly 1,000 public companies

07.06.18

The Securities and Exchange Commission (SEC) has approved amendments to the “smaller reporting company” (SRC) definition, expanding the number of smaller companies eligible to comply with the SEC’s current scaled disclosure requirements.

The SEC estimates that nearly 1,000 additional companies – specifically those with less than $250 million in publicly trades shares – would be eligible for SRC status in the first year under the new definition. 

The purposes of the amendments are to promote capital formation and reduce compliance costs for smaller companies while maintaining appropriate investor protections.

“I want our public capital markets to be a place where smaller companies can thrive and thereby provide our Main Street investors with more access to investing options where our public company disclosure rules and protections apply.”  said SEC Chairman Jay Clayton. “[b]oth smaller companies — where the option to join our public markets will be more attractive — and Main Street investors — who will have more investment options — should benefit.”

The following table summarizes the amendments to the SRC definition.  If a company satisfies either or both of the “public float” and “revenues” criteria, it may avail itself of SRC status:

Criteria


Previous SRC Definition


Revised SRC Definition






Public Float


Public float of less than $75 million


Public float of less than $250 million






Revenues


Less than $50 million of annual revenues and no public float


Less than $100 million of annual revenues and

  • no public float, or
  • public float of less than $700 million


An SEC-reporting company that determines that it does not qualify as an SRC under the amended thresholds will remain unqualified until it determines that it meets one or more subsequent qualification thresholds set forth in the table below.  The subsequent qualification thresholds are set at 80% of the initial qualification thresholds. 

Criteria


Previous SRC Definition


Revised SRC Definition






Public Float


Public float of less than $50 million


Public float of less than $200 million, if it previously had $250 million or more of public float






Revenues


Less than $40 million of annual revenues and no public float


Less than $80 million of annual revenues, if it previously had $100 million or more of annual revenues; and


Less than $560 million of public float, if it previously had $700 million or more of public float.


It is possible for a company to qualify as an SRC but also be an accelerated filer. 

Notably, the amendments do not impact the current thresholds in the “accelerated filer” and “large accelerated filer” definitions.  Accordingly, companies with $75 million or more of public float that qualify as an SRC will remain subject to the requirements that apply to accelerated filers, including current and periodic report filing deadlines and auditor’s attestation requirements.  The SEC, however, has begun to formulate possible changes to the “accelerated filer” definition that,  if adopted, would have the same goals as the amendments: promotion of capital formation, reduction in compliance costs and investor protection.

Finally, the SEC also increased the net revenue threshold in Rule 3-05(b)(2)(iv) of Regulation S-X from $50 million to $100 million.  This increase will allow acquiring companies to omit financial statements of businesses acquired or to be acquired for the earliest of the three fiscal years otherwise required by Rule 3-05 if the net revenues of that business are less than $100 million.

The amendments will become effective 60 days after publication in the Federal Register.



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