The U.S. Securities and Exchange Commission has proposed making it easier for registrants to qualify as “smaller reporting companies” subject to less stringent disclosure requirements.
Smaller reporting companies are eligible for “scaled disclosures,” meaning they do not need to provide as much financial and governance information as larger companies. Under a proposed rule issued by the SEC on Monday, a company with less than $250 million of public float would qualify for scaled disclosures, up from the current $75 million threshold.
If a company does not have a public float, it would be allowed to provide scaled disclosures if its annual revenues are less than $100 million, as compared to the current threshold of less than $50 million in annual revenues.
“Raising the financial thresholds in the smaller reporting company definition is intended to promote capital formation and reduce compliance costs for smaller companies while maintaining important investor protections,” SEC Chair Mary Jo White said in a news release.
Smaller companies can satisfy their reporting obligations by, among other things, providing an abbreviated business history and management discussion and analysis. Filings can omit a stock performance graph, market risk disclosures, executive compensation analysis, and executive pay ratio disclosure.
According to the SEC, its empirical analysis suggests scaled disclosures “may generate a modest, but statistically significant, amount of cost savings in terms of the reduction in compliance costs for most of the newly eligible smaller reporting companies under the proposed amendments, a modest, but statistically significant, deterioration in some of the proxies used to assess the overall quality of information environment, and a muted effect on the growth of the registrant’s capital investments, investments in research and development and assets.”
Under the proposed rule, once a company exceeds either of the thresholds, it will not qualify as a smaller reporting company again until public float falls below $200 million or, if it has no public float, its annual revenues are less than $80 million.