iOn Thursday, August 17, 2017, the U.S. Securities and Exchange Commission (the “SEC”) issued an interpretation that clarifies what financial information an emerging growth company (an “EGC”) may omit from its confidentially submitted draft registration statement.
The submission of a confidential draft registration statement for an initial public offering is one of the many benefits for an EGC that came about through the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act was intended to relax the regulatory burden on smaller companies and make the capital raising process more efficient from a time and cost perspective. Permitting EGCs to submit confidential draft registration statements allows EGCs to have more flexibility when going through the initial public offering process. Most notably, the confidential submission process allows for an EGC to halt its initial public offering if market conditions deteriorate or the company’s strategy changes, without having disclosed sensitive information to competitors prior to halting the offering. On June 29, 2017, the SEC expanded this practice to all potential registrants, not just EGCs, with the Chairman of the SEC Jay Clayton stating, “we are striving for efficiency in our processes to encourage more companies to consider going public, which can result in more choices for investors, job creation, and a stronger U.S. economy.”
The Fixing America’s Surface Transportation Act (the “FAST Act”) in December 2015 built off of the JOBS Act and, under Section 71003, allowed an EGC to omit financial information for historical periods otherwise required to be submitted in its draft registration statement if the registrant reasonably believes that such financial information will not be required at the time of the contemplated offering.
The SEC staff’s new guidance clarifies what financial information an EGC may omit from its draft and publicly filed registration statements. In its updated guidance, the SEC staff indicates that an EGC may omit from its filed registration statements both annual and interim financial information that “relates to a historical period that the issuer reasonably believes will not be required to be included…at the time of the contemplated offering.” Therefore, EGCs will be allowed to omit interim financial statements that will be superseded by the time of the contemplated offering. However, if the interim financial information will be included in a longer historical period that the EGC reasonably believes will be required to be included at the time of the contemplated offering, the EGC may not omit such interim financial information from its registration statement.
This new SEC staff guidance continues the trend of easing certain regulatory burdens placed on companies aiming to go public.
