The Securities and Exchange Commission on Thursday voted to adopt amendments to the “smaller reporting company” (SRC) definition to expand the number of companies that qualify for the scaled-down disclosure requirements.
The new smaller reporting company definition enables a company with less than $250 million of public float to provide scaled disclosures, as compared with the $75 million threshold under the prior definition.
The final rules also expand the definition to include companies with less than $100 million in annual revenue if they also have either no public float or a public float that is less than $700 million. Previously, companies with no public float had to have less than $50 million in annual revenue.
The SEC staff estimates that 966 additional companies will be eligible for SRC status in the first year under the new definition. They include 779 companies with a public float of $75 million or more but less than $250 million.
“Expanding the smaller reporting company definition recognizes that a one size regulatory structure for public companies does not fit all,” stated SEC Chair Jay Clayton.
“These amendments to the existing SRC compliance structure bring that structure more in line with the size and scope of smaller companies while maintaining our long-standing approach to investor protection in our public capital markets.”
Clayton said the amendments would making going public more attractive to smaller companies and would give “Main Street investors” more investment options.
The rules allow SRCs to satisfy their reporting obligations by, among other things, providing an abbreviated business history and management discussion and analysis. Filings can also omit a stock performance graph, market risk disclosures, executive compensation analysis, and executive pay ratio disclosure.
The SRC amendments were first proposed in 2016, when Mary Jo White was the SEC chair.
At the time, the SEC said that an empirical analysis had suggested that 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 … .”
The amended rules will become effective 60 days after publication in the Federal Register.
The amendments do not change the threshold in the “accelerated filer” definition. Those rules require, among other things, that filers provide the auditor’s attestation of management’s assessment of internal control over financial reporting.
However, according to the SEC press release, the commission’s staff has begun to formulate recommendations for possible changes to the “accelerated filer” definition. The changes would be aimed at reducing the number of companies that qualify as accelerated filers, to reduce compliance costs for those companies.