United States: SEC Amends Definition Of ‘Smaller Reporting Company' Expanding The Number Of Companies Eligible For Reduced Disclosure

On June 28, 2018, the Securities and Exchange Commission voted to amend the definition of "smaller reporting company" (SRC) to expand the number of companies eligible to take advantage of the reduced disclosure requirements applicable to SRCs, including certain financial data required under Items 301 and 302 of Regulation S-K, market risk disclosure, compensation discussion and analysis, and compensation committee report.

Under the amendment, a company that is not an investment company, an asset-backed issuer or a majority-owned subsidiary of a parent company that is not an SRC and is either (1) a company with a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter or (2) a company with a public float of less than $700 million and with less than $100 million of annual revenue during the most recently completed fiscal year for which audited financial statements are available or a nonpublic company, will qualify as an SRC. Prior to the amendment, only companies with a public float of less than $75 million or nonpublic companies with less than $50 million of annual revenue could qualify as an SRC. 

If an SRC loses its SRC status, it can re-qualify as an SRC if it has a public float of less than $200 million or if it has less than $80 million of annual revenue and a public float of less than $560 million.

These amendments do not change the threshold in the definitions of "accelerated filer" and "large accelerated filer." As a result, an SRC that is also an accelerated filer or large accelerated filer is still required to comply with the timing requirements applicable to the annual and quarterly reports required by such filers.  The Securities and Exchange Commission has begun to formulate recommendations to amend these definitions that would reduce the number of companies that qualify as accelerated filers. 

The Securities and Exchange Commission estimates that 966 additional companies will be eligible for SRC status in the first year under the amended definition. 

The amendments will become effective 60 days after publication in the Federal Register.

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