The Securities and Exchange Commission ("SEC") recently proposed amendments to its "smaller reporting company" ("SRC") definition to expand the number of companies qualifying as SRCs.1 Companies who qualify as SRCs can benefit from so-called scaled disclosure accommodations, which are intended to lessen the burden of complying with SEC disclosure requirements.2 The SEC has requested comments on the proposed amendments by August 30, 2016.
- The Current Rules
Under the current rules, a company that is a reporting registrant qualifies as an SRC if it (1) has less than $75 million in public float3 as of the last business day of its most recently completed second fiscal quarter; or (2) if it has zero public float and annual revenues of less than $50 million during its most recent fiscal year for which audited financial statements are available.
Companies that do not currently qualify as SRCs must wait until their public float falls below $50 million or, if they have zero public float, until their revenues fall below $40 million, in order to qualify. These lower thresholds for non-qualifying companies are intended to avoid situations where companies enter and exit SRC status due to small fluctuations in their public float or revenue.
- The Proposed Amendments
If the proposed amendments are adopted, the thresholds to qualify as an SRC would be increased (1) to $250 million in public float; or (2) to $100 million in annual revenues if there is no public float.4
Additionally, under the proposed amendments, companies who determined they do not currently qualify as an SRC would qualify when their public float fell below $200 million or, if they had zero public float, when their revenues fell below $80 million.
In connection with the proposed amendments to the SRC definition, the SEC is also proposing to amend its definition of "accelerated filer" so that the changes to the SRC definition would not affect the determination of which companies would be "accelerated filers."
Click here to view Annex A.