SEC to Ease Reporting for Smaller CompaniesJuly 11, 2018
On June 28, the Securities and Exchange Commission (SEC) voted to expand the definition of a “smaller reporting company” (SRC). The Commission established the SRC category in 2008 in an effort to provide general regulatory relief for smaller companies. These new changes will allow a greater number of small companies to qualify for certain scaled disclosure accommodations and expand small businesses’ access to public capital markets.
SEC Chairman Jay Clayton said, “I want our public capital markets to be a place where smaller companies can thrive and thereby provide our Main Street investors with more access to investing options where our public company disclosure rules and protections apply.” The Commission approached these provisions with the intent to promote capital formation and reduce compliance costs for smaller companies, all while maintaining appropriate investor protections.
The following modifications were adopted to the SRC definition and will become effective 60 days after publication in the Federal Register:
- Enables a company with less than $250 million of public float to provide scaled disclosures, as compared to the $75 million threshold under the prior definition;
- Expands the definition to include companies with less than $100 million in annual revenues if they also have either no public float or a public float that is less than $700 million; and
- Changes the revenue test in the prior definition, which allowed companies to provide scaled disclosure only if they had no public float and less than $50 million in annual revenues.
The Commission estimates that 966 additional companies will be eligible for small reporting company status in the first year under the new definition. The amendments, however, do not alter the threshold for “accelerated filers,” but according to the Commission, the staff is exploring possible reforms to reduce the number of companies that qualify as accelerated filers in order to further shrink compliance costs for those companies.
The move to scale regulations based on the size and scope of smaller firms is a smart approach because now these companies can allocate more of their time and capital to innovation and growing and competing in the marketplace. These changes allow both smaller companies, and Main Street investors to benefit, and the realization by the Commission that “a one size regulatory structure for public companies does not fit all,” is a long-overdue and encouraging signal moving forward.
NSBA has consistently advocated for this type of regulatory relief which allows smaller companies to gain greater access to the public capital markets, giving these businesses more growth and investment opportunities, which in turn will grow the economy. NSBA applauds the work of the Commission in adjusting the SRC definition and will continue to work with the SEC and other agencies to reduce burdensome regulations on small businesses.