The Securities and Exchange Commission has decided to expand the number of companies that can qualify for scaled-back disclosure requirements.
The commissioners voted Thursday to adopt amendments to the “smaller reporting company” (SRC) definition, 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 allows a company with less than $250 million of public float to provide scaled disclosures, compared to the $75 million threshold under the previous definition of the term. The final rules approved by the SEC 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. That reflects a change from the revenue test in the previous definition, which permitted companies to offer scaled disclosure only if they had no public float and less than $50 million in annual revenues. The rules will take effect 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 in a statement Thursday. “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.”
For now, the SEC isn’t changing for the threshold in the “accelerated filer” definition that requires, for example, that filers provide the auditor’s attestation of management’s assessment of internal control over financial reporting. However, Clayton has asked the SEC staff to come up with further changes to the “accelerated filer” definition to reduce the number of companies that qualify as accelerated filers to reduce compliance costs even more for them.
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