Written by wordpress627 on July 31, 2018

The SEC has increased the number of companies eligible for reduced disclosure by amending its definition of “Smaller Reporting Company.”

Under the amended definition, a company will now be a Smaller Reporting Company if it has a public float of less than $250 million instead of the current $75 million. In addition, a company with a public float of less than $700 million can now also be a Smaller Reporting Company if it has annual revenues of less than $100 million. A company’s public float is the aggregate worldwide number of shares of voting and non-voting common equity held by non-affiliates multiplied by the price at which the common equity was last sold, or the average of the bid and asked prices of the common equity, in the principal market for the common equity. An Exchange Act reporting company continues to measure its public float as of the last business day of its most recently completed second fiscal quarter to determine whether it is a Smaller Reporting Company.

The SEC staff estimates that the amendments will initially result in an additional 966 companies becoming Smaller Reporting Companies. The amended definition will be effective September 10, 2018.

What this means for disclosure and compliance

A company that (now) qualifies as a Smaller Reporting Company can voluntarily elect to reduce or eliminate some disclosures in its Form 10-K Annual Reports, Form 10-Q Quarterly Reports, proxy statements, and registration statements.

Regulation S-K Disclosure
101 – Description of Business May satisfy disclosure obligations by describing the development of the registrant’s business during the last three years rather than five years.

Business development description requirements less detailed.

102- Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters  Stock performance graph not required
301 – Selected Financial Data Not required.
302 – Supplementary Financial Information Not required.
303 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Two-year MD&A comparison rather than three-year comparison.

Two year discussion of impact of inflation and changes in prices rather than three years.

Tabular disclosure of contractual obligations not required.

305 – Quantitative and Qualitative Disclosures About Market Risk Not required.
402 – Executive Compensation Three named executive officers rather than five.

Two years of summary compensation table information rather than three. Not required:

  • Compensation discussion and analysis.
  • Grants of plan-based awards table.
  • Option exercises and stock vested table.
  • Pension benefits table.
  • Nonqualified deferred compensation table.
  • Disclosure of compensation policies and practices related to risk management.
  • Pay ratio disclosure.
404 – Transactions With Related Persons, Promoters and Certain Control Persons Description of policies/procedures for the review, approval or ratification of related party transactions not required.
407 – Corporate Governance Audit committee financial expert disclosure not required in first annual report

Compensation committee interlocks and insider participation disclosure not required.

Compensation committee report not required.

503 – Prospectus Summary, Risk Factors and Ratio of Earnings to Fixed Charges No ratio of earnings to fixed charges disclosure required. No risk factors required in Exchange Act filings.
601 – Exhibits Statements regarding computation of ratios not required.

The amendments did not change the current $75 million threshold for “accelerated filer” status. As a result, a Smaller Reporting Company under the new guidelines may remain an accelerated filer based on its public float. Companies with a public float of more than $75 million will continue to be subject to the following requirements applicable to an accelerated filer, among others:

  • Meeting accelerated filing deadlines for the periodic reports under the Securities Exchange Act of 1934 (Exchange Act).
  • Providing an auditor’s attestation report on management’s assessment of internal control over financial reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002.
  • Disclosing in its Form 10-K annual report unresolved staff comments on periodic or current reports.

Be sure to speak with your securities lawyer to confirm your new (possible) standing.