SEC Proposes Amendments to Definition of Smaller Reporting Company | Practical Law

SEC Proposes Amendments to Definition of Smaller Reporting Company | Practical Law

The SEC issued proposed rules that would increase the financial thresholds in the definition of smaller reporting company as used in the SEC's rules and regulations.

SEC Proposes Amendments to Definition of Smaller Reporting Company

Practical Law Legal Update w-002-7206 (Approx. 4 pages)

SEC Proposes Amendments to Definition of Smaller Reporting Company

by Practical Law Corporate & Securities
Published on 28 Jun 2016 • USA (National/Federal)
The SEC issued proposed rules that would increase the financial thresholds in the definition of smaller reporting company as used in the SEC's rules and regulations.
On June 27, 2016, the SEC issued proposed rules that would increase the financial thresholds in the definition of smaller reporting company (SRC) as used in the SEC's rules and regulations. If adopted, the proposal would expand the number of registrants that qualify as SRCs. SRCs are eligible for a number of disclosure accommodations under Regulation S-K and Regulation S-X. The proposed amendments do not affect the scope of these existing scaled disclosure requirements.
Currently, SRCs generally are registrants with either:
  • Less than $75 million in public float as of the last business day of their most recently completed second fiscal quarter.
  • Zero public float and annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.
The proposed rules would increase these thresholds to:
  • Less than $250 million in public float as of the last business day of their most recently completed second fiscal quarter.
  • Zero public float and annual revenues of less than $100 million during the most recently completed fiscal year for which audited financial statements are available.
As with the current definition, a registrant filing its initial registration statement under the Securities Act or the Exchange Act would calculate its public float as of a date within 30 days of filing of the registration statement.
Under the proposal, a registrant that determines that it does not qualify as an SRC would remain unqualified unless and until it determines that either:
  • Its public float is less than $200 million (up from $50 million under the current definition) as of the last business day of its most recently completed second fiscal quarter.
  • If its public float is zero, that its annual revenues were less than $80 million (up from $40 million in the current definition) during its previous fiscal year.
The proposed rules would also amend the definitions of accelerated filer and large accelerated filer to eliminate the provision in each that specifically excludes registrants that are eligible to use the SRC requirements under Regulation S-K for their annual and quarterly reports. As a result, the proposal would preserve the application of the current thresholds contained in the accelerated filer and large accelerated filer definitions, maintaining the status quo regarding the size of registrants that are subject to the accelerated filer disclosure and filing requirements. Therefore, companies with $75 million or more of public float that would qualify as SRCs would be subject to the requirements that apply currently to accelerated filers, including the:
  • Timing of the filing of periodic reports.
  • Requirement that accelerated filers provide the auditor's attestation of management's assessment of internal controls over reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002.
The SEC is accepting comments on the proposal until August 30, 2016.
To learn more about the benefits of being treated as an SRC and how to determine SRC status, see Practice Note, Determining Smaller Reporting Company Status and Understanding Key Differences in Its Disclosure and Reporting Requirements.