SEC proposes changes for smaller reporting companies

The Securities and Exchange Commission has proposed increasing the financial thresholds that define “smaller reporting companies,” expanding the number of companies that qualify for the scaled disclosures provided in Regulation S-K and Regulation S-X.

“Raising the financial thresholds in the smaller reporting company definition is intended to promote capital formation and reduce compliance costs for smaller companies while maintaining important investor protections,” SEC Chair Mary Jo White said in a statement.

Smaller reporting companies may provide scaled disclosures under the Commission’s rules and regulations. The proposed rule would enable a company with less than $250 million of public float to provide scaled disclosures as a smaller reporting company, as compared to the $75 million threshold under the current definition. If a company does not have a public float, it would be permitted to provide scaled disclosures if its annual revenues are less than $100 million, as compared to the current threshold of less than $50 million in annual revenues.

Once a company exceeds either of the thresholds, it will not qualify as a smaller reporting company again until public float or revenues decrease below a lower threshold. Under the proposal, a company would qualify only if its public float is less than $200 million or, if it has no public float, its annual revenues are less than $80 million.

The SEC is not proposing to increase the $75 million threshold in the “accelerated filer” definition. Companies with $75 million or more of public float that would qualify as smaller reporting companies would be subject to the requirements that apply currently to accelerated filers, including the timing of the filing of periodic reports and providing  the auditor’s attestation of management’s assessment of internal controls over reporting required by Section 404(b) of the Sarbanes-Oxley Act.

The SEC will accept public comments for 60 days after publication in the Federal Register, using the Commission’s online submission form or by sending an e-mail to rule-comments@sec.gov.