The Securities and Exchange Commission (SEC) expanded the number of companies that qualify as a “smaller reporting company” (SRC) and the existing scaled disclosures for these SRC’s

SEC Extends Qualifications for SRC’s and Scaled Disclosures

By | 07/20/2018 | 7:57 pm ET

The Securities and Exchange Commission (SEC) expanded the number of companies that qualify as a “smaller reporting company” (SRC) and the existing scaled disclosure accommodations for these SRC’s. The SEC estimates that approximately 1000 companies will now qualify for the scaled disclosures.

Scaled disclosures enable companies to provide less information, specifically for executive compensation and only submit audited financial statements for two fiscal years, compared to the three fiscal years which are required of larger companies. These scaled disclosures were initially established to provide regulatory relief for smaller companies that may have felt burdened by reporting requirements. The new amendments adjusted the qualifications for public float and revenue in order to be classified as an SRC.

Summary of the new amendments:

Public Float: Previously, companies had to have less than $75 million in public float, but the new amendments allow companies to have less than $250 million in public float.

Revenue: Previously, companies had to have less than $50 million in annual revenue and no public float, but the new amendments allow companies to have less than $100 million in annual revenue and either: no public float or public float less than $700 million.

If a company qualifies under the public float restrictions, it will be classified as an SRC regardless of what its revenue is.

SEC Chairman Jay Clayton said that “Expanding the smaller reporting company definition recognizes that a one size regulatory structure for public companies does not fit all. These amendments to the existing SRC compliance structure bring that structure more in line with the size and scope of smaller companies while maintaining our long-standing approach to investor protection in our public capital markets. Both smaller companies — where the option to join our public markets will be more attractive — and Main Street investors — who will have more investment options — should benefit.”

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