July 21, 2018

July 20, 2018

Subscribe to Latest Legal News and Analysis

July 19, 2018

Subscribe to Latest Legal News and Analysis

SEC’s Amended Definition of “Smaller Reporting Company” Means More Companies Qualify for Scaled Disclosure Requirements

On June 28, 2018, the Securities and Exchange Commission (SEC) voted to amend the definition of “smaller reporting company” to allow more companies to use the scaled disclosure requirements available to smaller reporting companies. This expansion is estimated to increase the number of companies that qualify for smaller reporting company status by nearly 1,000. The scaled disclosure requirements available to smaller reporting companies involve more streamlined narrative and financial disclosures in filings under both the Securities Act of 1933 and the Securities Exchange Act of 1934, resulting in reduced compliance costs. The new definition will become effective 60 days after publication in the Federal Register.

Qualifying as a Smaller Reporting Company

Under the amended definition of “smaller reporting company,” a company will qualify as a smaller reporting company if it (a) has a public float of less than $250 million or (b) has a public float of less than $700 million (including no public float) and annual revenues of less than $100 million, in each case as of the last business day of its most recently completed second fiscal quarter. Once a company’s public float or annual revenues exceed the thresholds for a smaller reporting company, that company can again qualify as a smaller reporting company in a subsequent year only if its public float and (if relevant) annual revenues meet thresholds that are 80 percent of the amended thresholds. The following table sets forth the prior thresholds and the amended thresholds.

 

Test

Prior Threshold

Amended Threshold

Public Float

Less than $75 million

Less than $250 million

Annual Revenues

No public float + less than $50 million of annual revenues

Public float less than $700 million less than $100 million of annual revenues

Accelerated Filer Status and Changes to Cover Pages of Forms 10-K and 10-Q and Registration Statements

The SEC did not amend the public float threshold contained in the definitions of “accelerated filer” and “large accelerated filer,” which remains at $75 million. As a result, smaller reporting companies are no longer automatically excluded from the definition of “accelerated-filer,” and a smaller reporting company with a public float of $75 million or more will be an accelerated filer and be required to, among other things, provide an auditor attestation of management's assessment of internal control over financial reporting. Conforming amendments have been made to the cover pages for registration statements (Forms S-1, S-3, S-4, S-8, S-11, Form 10) and periodic reports (Forms 10-K and 10-Q) to recognize that a company may be both a smaller reporting company and an accelerated filer.

Scaled Disclosures for Smaller Reporting Companies

The following table summarizes the scaled disclosure requirements available to smaller reporting companies under Regulation S-K. Smaller reporting companies are also eligible for certain scaled disclosure requirements under Article 8 of Regulation S-X.

Regulation S-K

General Disclosure Requirements

Smaller Reporting Company Scaled Disclosure Requirements

Description of Business (Item 101)

Description of the general developments of the business for the last five years

Only required to provide a description for the last three years

Market price of and dividends on registrant’s common equity and related stockholder matters (Item 202)

A performance graph comparing the yearly percentage change in the company’s cumulative total shareholder return on common stock registered under Section 12 of the Securities Exchange Act of 1934

No performance graph under Item 202 is required

Selected financial data (Item 301)

Selected financial data for the past five years

Not required to provide information under Item 301

Supplementary financial information (Item 302)

Supplementary financial information, including certain quarterly financial data

Not required to provide information under Item 302

Management's discussion and analysis (MD&A) of financial condition and results of operations 
(Item 303)

Three-year MD&A comparison and a five-year contractual obligations table

Only required to provide a two-year MD&A comparison. Not required to provide the five-year contractual obligations table

Quantitative and

qualitative disclosures about market risk 
(Item 305)

Certain quantitative and qualitative information about market risk

Not required to provide information under Item 305

Executive compensation 
(Item 402)

Compensation discussion and analysis (CD&A)

Summary compensation table must be provided for the last three years
 

All compensation tables

CD&A is not required
 

Summary compensation table must be provided for the last two years

Certain compensation tables are not required, including tables for Nonqualified Deferred Compensation, Grants of Plan-Based Awards, Option Exercises and Stock Vested and Pension Benefits

Transactions with related persons, promoters and certain control persons 
(Item 404)

Disclosure of related party transactions exceeding $120,000 since the beginning of the registrant's last fiscal year

 

 

 

 

 

 

Disclosure of policies and procedures for the review, approval, or ratification of related party transactions is required.

 

Disclosure of related party transactions exceeding the lesser of $120,000 or 1% of the company’s total assets at year-end for the last two completed fiscal years (This is actually an expanded disclosure requirement for smaller reporting companies)

 

Not required to disclose policies and procedures for the review, approval, or ratification of related party transactions

Corporate governance 
(Item 407)

Full compliance with the disclosure of corporate governance information

Not required to provide Compensation Committee Reports or information regarding Compensation Committee Interlocks and Insider Participation

Prospectus summary, risk factors and ratio of earnings to fixed charges (Item 503)

Provide ratio of earnings to fixed charges

Discuss significant factors that make an investment speculative or risky

Not required to provide ratio of earnings to fixed charges.

Not required to include “Risk Factors” in Forms 10-K and 10-Q (but must include “Risk Factors” in filings made under the Securities Act of 1933)

Exhibits (Item 601)

All exhibits

Not required to provide Statement Regarding Computation of Ratios exhibit

© 2018 Schiff Hardin LLP

TRENDING LEGAL ANALYSIS


About this Author

Arianne A. Freeman, Financial Areas Attorney, Local Regulation Lawyer
Associate

As a first-year associate, Arianne A. Freeman is working in several practice areas to learn and gain experience before choosing a practice group.

After graduating law school, Arianne was a PILI Graduate Fellow for the Cook County Office of the Public Guardian, where she represented minors in child protection proceedings.

312.258.5610
Victoria Pool, Corporate Attorney, Schiff Hardin Law Firm
Associate

Victoria Pool handles a wide range of corporate and securities matters including business organization, corporate governance, commercial transactions and securities compliance. She advises both public and private companies and their boards of directors in a variety of industries, including the financial services industry.

Ms. Pool has experience with public and private mergers and acquisitions, securities offerings, and general corporate organization and compliance matters. She is also knowledgeable in securities, futures and derivatives regulation, and she authors and edits Schiff Hardin publications on these and other topics.

312.258.5841
Robert Minkus, Corporate Attorney, Schiff Hardin Law Firm
Partner

Robert Minkus focuses his work on mergers and acquisitions and issues of public disclosure. His practice also includes general corporate and corporate finance matters.

312.258.5584