The Jumpstart Our Business Startups Act (the “JOBS Act”) was signed into law to facilitate capital raising by reducing certain initial public offering (“IPO”) and reporting requirements for Emerging Growth Companies. An “Emerging Growth Company” is an issuer that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year, subject to certain disqualification events.
Under the JOBS Act, Emerging Growth Companies may confidentially submit to the Securities and Exchange Commission (“SEC”) a draft registration statement for confidential, non-public review by the SEC prior to public filing. While confidential submission is not required, a majority of Emerging Growth Companies have chosen to confidentially submit at least one draft registration statement prior to public filing since the enactment of the JOBS Act on April 5, 2012. The additional flexibility that confidential submissions of registration statements gives Emerging Growth Companies is particularly beneficial for biotech and other technology companies where valuation is uncertain and the timing of an IPO depends on obtaining certain regulatory or other approvals.
It is important to note that a confidential submission is distinct from a “filing” with the SEC. Since a confidential submission is not a filing, the safe harbor under Rule 163A for issuer communications made more than 30 days before a public filing will not be triggered by a confidential submission. Additionally, a confidential submission will not subject an Emerging Growth Company to Sarbanes-Oxley since Sarbanes-Oxley only applies to companies that have filed a registration statement with the SEC.
While confidential submissions must be substantially complete when submitted, a confidential submission is not required to include the consent of auditors and is not required to be signed. Since SEC filing fees related to registration statements are paid with a company’s first public filing, an Emerging Growth Company is not required to pay a filing fee when confidentially submitting a registration statement.
Emerging Growth Companies may publicly announce the confidential submission of a registration statement for SEC review and such announcement will not constitute gun jumping provided that Securities Act Rule 135 has been followed. Emerging Growth Companies that choose to confidentially submit a registration statement should note that they are prohibited from commencing an IPO road show until at least 21 days after publicly filing its initial confidential submission and all confidentially submitted amendments thereto.