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SEC Approves Rule Amendments That Expand the Number of Public Companies That Qualify for Smaller Reporting Company Scaled Disclosures

On June 28, 2018, the US Securities and Exchange Commission (SEC) adopted rule amendments that raise the thresholds in the “smaller reporting company” definition. Under the amendments, the public float threshold for determining if a company qualifies as a smaller reporting company increased from less than $75 million to less than $250 million. The final rule amendments also expand the smaller reporting company definition to include companies with less than $100 million in annual revenues if they also have either no public float or a public float of less than $700 million. This reflects a change from the prior revenue test, under which companies with no public float and revenue of less than $50 million qualified as smaller reporting companies. The SEC rule amendments will become effective 60 days after publication in the Federal Register.

As a result of the higher thresholds, more companies will be eligible to comply with the current scaled disclosure requirements applicable to smaller reporting companies. The scaled disclosure requirements for smaller reporting companies permit them to, among other things, include in their SEC periodic reports and filings less extensive executive compensation disclosure than required of other reporting companies and provide audited financial statements for two years instead of three. The SEC estimates that an additional 966 companies will be eligible for smaller company reporting status in the first year under the new definition.

The SEC rule amendments do not change the threshold in the “accelerated filer” definition in Rule 12b-2 of the Securities Exchange Act of 1934 that requires filers to provide the auditor’s attestation of management’s assessment of internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act of 2002. Consequently, companies with $75 million or more of public float that qualify as smaller reporting companies will remain subject to the requirements that apply to accelerated filers, including the timing of the filing of periodic reports and the requirement that accelerated filers provide the auditor’s attestation required by Section 404(b) of the Sarbanes-Oxley Act.

© 2018 McDermott Will & Emery

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Thomas P. Conaghan, Mcdermott Will Emery law Firm, Corporate Attorney
Partner

Thomas P. Conaghan is a partner in the law firm of McDermott Will & Emery and is based in the Firm’s Washington, D.C., office.  Tom represents both publicly held and closely held businesses, underwriters and other sources of capital, corporate boards and board committees and corporate executives.  He advises both U.S. and foreign-based public companies on issues relating to public and private offerings of securities, disclosure, periodic reporting, corporate governance, executive compensation, the rules of the New York Stock Exchange and the Nasdaq Stock Market and compliance with the...

202-756-8161
Partner

Gary Emmanuel is a partner in the law firm of McDermott Will & Emery and is based in the Firm’s New York office. He focuses his practice on corporate securities matters.

With over 15 years of experience, Gary represents both domestic and foreign companies that are navigating the process of capital raising including initial public offerings, registered direct offerings, follow-on offerings, private placements, PIPEs and bridge financings. Gary has worked extensively with biotechnology and other life science companies, both as company counsel and as underwriter’s counsel. 

He advises companies on issues relating to disclosure, periodic reporting, corporate governance, American Depositary Receipt (ADR) programs, and the rules of the NYSE MKT, NYSE and Nasdaq. He also counsels companies in a wide variety of corporate transactions including licensing, reverse mergers, acquisitions and joint ventures.

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Eric Orsic, corporate, securities, attorney, McDermott Will, law firm
Partner

Eric Orsic is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. Eric focuses his practice in the areas of mergers and acquisitions, and securities transactions and compliance.   Eric works with both public and privately-held companies to structure and negotiate business acquisitions/dispositions.  His public company transactional experience includes public equity and debt offerings, tender offers and going-private transactions.  Eric also serves as outside securities counsel to several public companies and advises on SEC compliance...

312-984-7617
Heidi Steele, Mcdermott, Corporate Securities lawyer
Partner

Heidi J. Steele Focuses her practice on corporate securities, mergers and acquisitions of public and private companies and corporate counseling. She has extensive experience in public and private equity and debt financings, compliance with disclosure and regulatory requirements, tender offers and mergers, acquisitions and dispositions. She advises public and private corporations on a variety of matters, including securities compliance.

Heidi acts as counsel for a wide range of corporate combinations. Recent transactions work includes public offerings of common...

312-984-3624