The SEC has historically attempted to provide regulatory relief for smaller companies in its rule-making efforts. Over time, however, the pockets of available relief and their interaction have become increasingly complex. The SEC has proposed rules that would simplify the regulatory relief available to smaller companies and expand the relief to include more companies.
The SEC rules currently include two major categories of smaller companies—“small business issuers” and “non-accelerated filers”—for purposes of scaling disclosure and reporting requirements to the needs of smaller companies and their investors. These two categories of smaller companies are defined as follows:
- “Small business issuers” essentially are companies with both a public float and revenues of less than $25 million.
- “Non-accelerated filers” are companies that do not qualify as “large accelerated filers” or “accelerated filers” under SEC rules, which essentially means that they are companies with a public float of less than $75 million.
“Small business issuers” that file documents with the SEC under the Securities Act, Exchange Act, or Trust Indenture Act are eligible to follow the disclosure standards set forth in Regulation S-B instead of Regulation S-K, which applies to most other larger reporting companies. Generally speaking, the disclosure standards under Regulation S-B are less rigorous in comparison to the standards contained in Regulation S-K. In most cases, small business issuers may make disclosures based on Regulation S-B only if they use one of the forms the SEC has designated with the letters “SB”—Form 10 SB, Form 10 QSB, Form 10 KSB, Form SB-1, and Form SB-2. One of the most important provisions of Regulation S-B is Item 310, which governs the form, content and preparation of financial statements for companies that provide disclosure pursuant to Regulation S-B. The requirements in Item 310 of Regulation S-B are less detailed than the requirements in Regulation S-X, which governs the financial statements of most companies that do not qualify to report under Regulation S-B standards.
Smaller companies qualifying as “non-accelerated filers” may file their annual reports no later than 90 days after their fiscal-year end and their quarterly reports no later than 45 days after the end of each fiscal quarter. This contrasts with the 60 day and 75 day deadlines for the annual reports of large accelerated filers and accelerated filers, respectively, and the 40 day deadline for quarterly reports of such larger companies.
The proposals would expand the availability of the SEC’s disclosure and reporting requirements for smaller companies to most companies with a public float of less than $75 million, instead of the current $25 million limit. The SEC is proposing a new term—“smaller reporting company”—to replace the term “small business issuer” and proposing to make available to these smaller reporting companies the disclosure and reporting standards that the SEC makes available to small business issuers and most non-accelerated filers. The SEC proposals would provide further regulatory simplification and relief for smaller reporting companies by integrating into Regulation S-K the salient elements of the less detailed disclosure requirements currently available to small business issuers under Regulation S-B. Finally, the SEC proposals would eliminate all “SB” forms associated with Regulation S-B.