SEC Amends Definition of “Smaller Reporting Company”
August 1, 2018
On June 28, 2018, the Securities and Exchange Commission (“SEC”) amended the definition of “smaller reporting company” (“SRC”) to expand the number of smaller companies qualifying as SRCs and which are eligible to benefit from the scaled disclosure available to SRCs thereby helping reduce the burden and cost of compliance and disclosure under certain of the SEC’s rules and regulations for eligible companies.
The SEC did not amend the definitions of “accelerated filer” and “large accelerated filer” but preserved the existing thresholds in those definitions, although the SEC has directed its staff to formulate recommendations for possible additional changes to the “accelerated filer” definition. Accordingly, a smaller company may meet the definition of SRC but still be subject to the timing of filing and certain disclosure obligations applicable to an accelerated filer.
The amendments become effective September 10, 2018.
Prior Definition of SRC
Under the prior definition of SRC, a company qualified as an SRC if:
its public float was less than $75 million, or
it had no public float or no market price for its public equity and less than $50 million in annual revenue
A company’s “public float” is calculated by:
multiplying the aggregate worldwide number of shares of a registrant’s voting and non-voting common equity held by non-affiliates by:
the price at which the common equity was last sold or the average of the bid and asked prices of common equity in the principal market for the common equity
The determination of public float assumes the existence of a public trading market for an issuer’s equity securities. An entity whose equity securities do not trade in any public trading market is not able to qualify on the basis of a public float test.
“Annual revenues” are as of the most recently completed fiscal year for which audited financial statements are available.
Under Regulation S-K, Regulation S-X, and the SEC’s rules and forms, SRCs qualify for certain scaled disclosure on an item by item basis although they may elect to follow the disclosure requirements applicable to non-SRCs.
The scaled disclosure requirements include that they may provide:
only two years of income, cash flow, and changes in stockholders’ equity statements (instead of three years)
only two years of management’s discussion and analysis (MD&A) (instead of three years)
scaled executive compensation disclosure including:
providing information regarding three named executive officers (instead of five NEOs)
providing compensation table analysis for only two years (instead of three years)
not being required to provide a compensation discussion and analysis (CD&A)
A summary of scaled disclosures permitted of SRCs is attached as Appendix A.
Amendments to Definition of SRC
The SEC has amended the definition of “smaller reporting company” to include companies:
with a public float of less than $250 million or
with annual revenues of less than $100 million for the previous year and either no public float or a public float of less than $700 million
The effect of the amendments will enable a larger number of smaller companies to qualify as SRCs thereby reducing the burden of certain reporting and disclosure obligations otherwise applicable under the SEC’s rules, regulations and forms.
Definitions of “Accelerated Filer” and “Large Accelerated Filer” Remain Unchanged
The final amendments do not amend the current definitions of “accelerated filer” or “large accelerated filer” under the SEC’s rules and forms. Accordingly, a company with a public float of $75 million or more that qualifies as an SRC will remain subject to the requirement regarding the timing of the filing of periodic reports with the SEC and the requirement to provide an auditor’s attestation of management’s assessment of internal control over financial reporting.
For more information, please contact:
Neil R.E. Carr
Direct Dial: +1 202 459 4651
Kathleen L. Cerveny
Direct Dial: +1 202 779 9507
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