As noted in our earlier post, the Securities and Exchange Commission (“SEC”) released two rulemaking proposals aimed at overhauling how public companies access the capital markets and address their ongoing reporting obligations.
The second rulemaking proposal, “Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies,” would simplify the filer status framework and expand disclosure accommodations to the vast majority of reporting companies.
Currently, public companies that file periodic reports with the SEC are grouped into four filer categories, with different requirements and disclosure accommodations. These include (1) large accelerated filers, (2) accelerated filers, (3) non-accelerated filers, and (4) smaller reporting companies (“SRCs”). An additional category of filers, emerging growth companies (“EGCs”), would remain as-is if the proposed rules are adopted.
The SEC’s proposal would collapse the four overlapping filer categories into just two: large accelerated filers and non-accelerated filers. As a result, the disclosure accommodations currently reserved for SRCs and EGCs, including scaled executive compensation disclosure, exemption from say-on-pay votes, and fewer required years of financial statements, would become available to roughly 81% of public companies.
Under the proposal:
- The large accelerated filer threshold would increase from $700 million to $2 billion in public float, measured based on the average stock price over the final 10 trading days of the second fiscal quarter and required to be met for two consecutive years. In addition, no company would qualify as a large accelerated filer until it has been subject to Exchange Act reporting for at least 60 consecutive months.
- All companies that do not meet the large accelerated filer criteria would be classified as non-accelerated filers, benefiting from expanded disclosure accommodations and an exemption from the requirement to obtain an auditor’s attestation on a company’s internal control over financial reporting.
- A new subcategory of “small” non-accelerated filers, defined as companies with total assets of $35 million or less for the two most recent years, would receive extended filing deadlines. Small non-accelerated filers would be allowed an additional 30 days for Form 10-K annual reports and an additional five days for Form 10-Q quarterly reports. This subset represents approximately 18% of public companies.
In a statement, SEC Commissioner Hester Peirce noted that “[s]ince the large accelerated filer status was adopted over 20 years ago, the number of companies subjected to our most stringent disclosure requirements has nearly doubled. Recalibrating the large accelerated filer status threshold, which we propose to do, would be a positive step toward right-sizing the regulatory burden of being a public company. Currently, companies with just over $700 million in public float face the same set of requirements as the largest public companies in our markets.”
The public comment period for the proposal will remain open for 60 days following publication of the proposing release in the Federal Register.
Read the SEC’s press release, fact sheet and proposing release. We note that the proposing release is lengthy and detailed. A client alert will follow in short order analyzing these significant changes.