David N. Feldman

SEC Expands “Smaller Reporting Company” Definition

The SEC Commissioners voted unanimously on June 28, 2018 to expand the definition of “smaller reporting company.” This change has been requested as a key recommendation for a number of years at the annual SEC small business conference.  Companies with SRC status have somewhat relaxed disclosure and reporting obligations, such as providing two rather than three years of financial information, as well as relief from some of the more costly aspects of the Sarbanes-Oxley Act of 2002. The change is effective 60 days after publication in the Federal Register, which should happen fairly soon.

The revised definition raises the value of a company’s public float to qualify as an SRC  from $75 million to $250 million. If a company does not have public float (such as at the time of its IPO), it previously was an SRC unless revenues exceeded $50 million. The new rule says any company is an SRC if it has less than $100 million in revenues and either no public float or a public float of less than $700 million.

Many of the benefits of SRC status also are available if the company is an “emerging growth company” under the Jumpstart our Business Startups (JOBS) Act of 2012. Those are generally companies with less than $1.07 billion in revenues who had not completed an SEC registration of securities prior to passing the JOBS Act. EGC status, however, is terminated over time.