On June 28, 2018, the SEC adopted amendments to the definition of “smaller reporting company.” The amendments become effective on September 8, 2018. Smaller reporting companies can take advantage of scaled-back disclosure requirements in reports and registration statements filed with the SEC.
Before these amendments, a “smaller reporting company” was defined as an issuer with a public float of less than $75 million as of the last day of its most recently completed second fiscal quarter. “Public float” is the market value of securities held by non-affiliates, i.e. held by persons other than directors, executive officers, and controlling shareholders. Smaller reporting companies were also previously excluded from the definition of “accelerated filer” under SEC rules. Accelerated filers, as the name suggests, have earlier filing deadlines for SEC reports than non-accelerated filers and smaller reporting companies.
The amendments change the definition of “smaller reporting company” to include issuers with a public float of less than $250 million and issuers with annual revenues of less than $100 million for the previous year and either no public float or a public float of less than $700 million. However, the amendments also change the definition of “accelerated filer” so that it no longer excludes smaller reporting companies. As a result, it is now possible for an issuer to be both a smaller reporting company and an accelerated filer. Companies with a public float of between $75 million and $250 million fall into this category. Companies that are both smaller reporting companies and accelerated filers will also be required to file annual and quarterly reports with the SEC on the accelerated calendar and will be subject to auditor attestation requirements for internal control over financial reporting, but will be eligible to provide scaled-back disclosures. Of note, smaller reporting companies are not required to provide compensation discussion and analysis or pay ratio disclosures.
Overall, this is good news for smaller companies because it expands the universe of issuers eligible to provide scaled-back disclosures. However, the SEC also created some confusion by not also amending the accelerated filer definition to track the smaller reporting company definition. SEC Chair Jay Clayton has directed the staff to make recommendations for possible additional changes to the “accelerated filer” definition that would reduce the number of accelerated filers.
Final SEC rules on Smaller Reporting Company Definition: https://www.sec.gov/rules/final/2018/33-10513.pdf
Jonathan A. Greene, S. Halle Vakani, and Donald R. Reynolds are members of the Capital Markets practice group of Wyrick Robbins, which represents clients across a broad range of industries in connection with their significant financing transactions. The Capital Markets group publishes Client Alerts periodically as a service to clients and friends. The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.