The Securities and Exchange Commission voted last week to expand the definition for companies to qualify for the “smaller reporting company” (SRC) status, thereby increasing the number of companies that don’t need to meet the stiffer disclosure rules required of larger companies.
The new smaller reporting company definition 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. The final rules also expand 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. This reflects a change from 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 rules will become effective 60 days after publication in the Federal Register.
“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,” said SEC Chairman Jay Clayton. “Expanding the smaller reporting company definition recognizes that a one size regulatory structure for public companies does not fit all. 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. Both smaller companies—where the option to join our public markets will be more attractive—and Main Street investors—who will have more investment options—should benefit.”
The amendments do not change the threshold in the “accelerated filer” definition that requires, among other things, that filers provide the auditor’s attestation of management’s assessment of internal control over financial reporting. However, Chairman Clayton has directed the staff, and the staff has begun, to formulate recommendations to the Commission for possible additional changes to the “accelerated filer” definition to reduce the number of companies that qualify as accelerated filers in order to further reduce compliance costs for those companies. 