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FACT SHEET
Amendments to the Smaller
Reporting Company Definition
SEC Open Meeting - June 28, 2018
Background
On June 28, The Securities and Exchange Commission
(SEC) approved amendments to raise the thresholds in the smaller reporting
company definition, thereby expanding the number of smaller companies eligible
to comply with our current scaled disclosure requirements. These
amendments are intended to promote capital formation and reduce compliance
costs for smaller companies while maintaining appropriate investor protections.
The Commission established the smaller reporting
company (“SRC”) category of companies in 2008 in an effort to provide general
regulatory relief for smaller companies. SRCs may provide scaled
disclosures under Regulation S-K and Regulation S-X. Under the previous
definition, SRCs generally were companies with less than $75 million in public
float. Companies with no public float − because they have no public
equity outstanding or no market price for their public equity − were
considered SRCs if they had less than $50 million in annual revenues.
Amendments
to the Smaller Reporting Company Definition
Under the amendments, companies with a public
float of less than $250 million will qualify as SRCs. A company with no
public float or with a public float of less than $700 million will qualify as a SRC if it had annual revenues of less than $100 million
during its most recently completed fiscal year.
The following table summarizes the amendments to
the SRC definition.
Criteria |
Previous
SRC Definition |
Revised
SRC Definition |
Public Float |
Public
float of less than $75 million |
Public
float of less than $250 million |
Revenues |
Less than $50
million of annual revenues and no public float |
Less than $100 million of annual
revenues and ·
no public float, or ·
public float of less than $700 million |
Consistent with the previous definition, under the
amendments, a company that determines that it does not qualify as a SRC under the above thresholds will remain unqualified
until it determines that it meets one or more lower qualification
thresholds. The subsequent qualification thresholds, set forth in the
table below, are set at 80% of the initial qualification thresholds.
Criteria |
Previous SRC Definition |
Revised SRC Definition |
Public
Float |
Public
float of less than $50 million |
Public
float of less than $250 million |
Revenues |
Less than
$40 million of annual revenues and no public float |
Less than $80 million of annual
revenues, if it previously had $100 million or more of annual revenues; and Less than $560 million of public
float, if it previously had $700 million or more of public float. |
Commission staff estimates that 966 additional companies
will be eligible for SRC status in the first year under the new
definition. These include: 779 companies with a public float of $75
million or more and less than $250 million; 161 companies with a public float
of $250 million or more and less than $700 million and revenues of less than
$100 million; and 26 companies with no public float and revenues of $50 million
or more and less than $100 million.
Amendments
to Rule 3-05 of Regulation S-X
The amendments to Rule 3-05(b)(2)(iv) of
Regulation S-X increase the net revenue threshold in that rule from $50 million
to $100 million. As a result, companies may omit financial statements of
businesses acquired or to be acquired for the earliest of the three fiscal
years otherwise required by Rule 3-05 if the net revenues of that business are
less than $100 million.
Amendments
to the Accelerated Filer and Large Accelerated Filer Definitions
The final amendments preserve the application of
the current thresholds contained in the “accelerated filer” and “large
accelerated filer” definitions in Exchange Act Rule 12b-2. As a result,
companies with $75 million or more of public float that qualify as SRCs will
remain subject to the requirements that apply to accelerated filers, including
the timing of the filing of periodic reports and the requirement that
accelerated filers provide the auditor’s attestation of management’s assessment
of internal control over financial reporting required by Section 404(b) of the
Sarbanes-Oxley Act of 2002. However, the Chairman has directed the staff,
and the staff has begun, to formulate recommendations to the Commission for
possible additional changes to the “accelerated filer” definition that, if
adopted, would have the effect of reducing the number of companies that qualify
as accelerated filers in order to promote capital formation by reducing
compliance costs for those companies, while maintaining appropriate investor
protections.
Source: https://www.sec.gov/news/press-release/2018-116
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