SEC Proposes Changing Smaller Reporting Company Definition and Streamlining Disclosure Requirements 

Corporate/Securities Alert

August 2. 2016

The Securities and Exchange Commission (SEC) recently released two separate proposals, one that aims to expand “smaller reporting company” eligibility and another that is designed to streamline disclosure requirements.

SEC Proposes Amendments to “Smaller Reporting Company” Definition

On June 27, 2016, the SEC proposed for comment amendments to the definition of smaller reporting company that, if adopted, would increase the financial thresholds in the smaller reporting company definition to “promote capital formation and reduce compliance costs for smaller companies,” according to SEC Chair Mary Jo White. The proposed rules would enable companies with less than $250 million of public float to provide scaled disclosures as a smaller reporting company, as compared with the $75 million threshold under the current definition. An issuer’s “public float” is the value of its common equity held by nonaffiliates as of the last day of the second quarter of the most recently completed fiscal year. In addition, under the proposed amendments, companies that do not have public float would be permitted to provide scaled disclosures if their annual revenues are less than $100 million, compared to the current threshold of less than $50 million in annual revenues.

Reporting companies with less than $200 million of public float that do not currently qualify for smaller reporting company status would be eligible to elect smaller reporting company status.  However, the SEC’s proposal does not propose to change the $75 million threshold in the “accelerated filer” definition. Accordingly, accelerated filers that elect smaller company status would continue to be subject to accelerated filing deadlines for periodic reports.

If adopted, the change would expand the number of companies that qualify for the scaled down disclosures available to smaller reporting companies under the SEC’s Regulations S-K and S-X.  Public comments on the proposed amendments are due no later than August 30, 2016.

The proposed amendments can be found here.

SEC Proposes Amendments to Regulation S-K to Update and Simplify Disclosure Requirements

On July 13, 2016, as part of its disclosure effectiveness project, the SEC proposed amendments to certain SEC disclosure requirements with the intent of eliminating redundant, overlapping, outdated, and superseded disclosure provisions in light of subsequent changes to the SEC’s disclosure requirements, U.S. Generally Accepted Accounting Principles (U.S. GAAP), International Financial Reporting Standards (IFRS), and technology. The proposed amendments are designed to streamline the SEC’s disclosure requirements without significantly altering the total mix of information currently provided to investors or otherwise implement the substantive revisions to Regulation S-K discussed in the SEC’s April 2016 concept release, “Report on Review of Disclosure Requirements in Regulation S-K.”

Redundant or Duplicative Requirements

The proposed amendments would eliminate certain disclosure requirements set forth in Regulation S-K or Regulation S-X that duplicate requirements under U.S. GAAP, or IFRS. Examples include certain disclosure requirements relating to foreign currency, consolidation, income tax rate reconciliation, warrants, related-party transactions, material contingencies, and earnings per share, among others. In eliminating these duplicative requirements, the SEC is aiming to simplify compliance for issuers.

Overlapping Requirements

Several of the SEC’s proposed amendments include deletions or integration of overlapping disclosure requirements.

Proposed Deletions

The SEC proposed deleting disclosure requirements that provide for disclosures that are reasonably similar to overlapping U.S. GAAP, IFRS, or other disclosure requirements or require disclosure that the SEC believes is no longer useful to investors:

  • The SEC proposed deleting a number of Regulation S-X requirements that it regards as substantially similar to disclosures required by U.S. GAAP. Examples include disclosures about repurchase and reverse repurchase agreements, derivative accounting, pro forma information in interim financial statements in connection with business combinations, and dispositions, among others.
  • The SEC proposed deleting requirements for disclosures in the business section about segment financial information and performance, geographic areas, including foreign operations and seasonality, all in reliance on similar disclosures required in the financial statements and MD&A. In addition, the SEC proposed removing Regulation S-K and Form 20-F requirements to disclose information about research and development in reliance on similar disclosures required in the financial statements under U.S. GAAP or IFRS.
  • The SEC proposed eliminating the table currently required in Form 10-K (or incorporated by reference from an issuer’s proxy statement) for existing equity compensation plans with equity securities authorized for issuance in reliance on similar disclosures required in the financial statements under U.S. GAAP.
  • The SEC also proposed removing the requirements for issuers of registered debt securities to disclose a ratio of earnings to fixed charges and for issuers of registered preferred equity securities to disclose a ratio of dividends to earnings. As noted in the release, many of the components of these ratios are already included in, or can be derived from, the financial statements.

Proposed Integrations

The SEC proposed integrating certain overlapping disclosure requirements. The proposal would streamline the disclosure requirements about restrictions on dividends, foreign currency restrictions, and performance by geographic area, which are currently in various places, into a single comprehensive requirement in the financial statements.

Solicitation of Comments on Disclosure Requirements

The SEC is also soliciting comment on certain disclosure requirements that overlap with U.S. GAAP, but require incremental information. These include disclosures regarding major customers and legal proceedings.

Outdated and Superseded Requirements

The SEC also identified and proposed amendments to, and deletions of, disclosure requirements that have become obsolete as a result of the passage of time or changes in the regulatory, business, or technological environment. For example, the SEC proposed deleting references to the SEC’s Public Reference Room, replacing detailed disclosure requirements for most issuers on the trading of their stock with the disclosure of the trading market and ticker symbol, and deleting requirements relating to disclosure of readily available foreign exchange data. The SEC also proposed to amend Form 20-F for IPOs by foreign private issuers to permit the use of annual financial statements that are older than 12 months, but not older than 15 months, without the need for a waiver from the SEC. The SEC also proposed to update some disclosure requirements to reflect more recently updated other disclosure requirements, or more recently updated U.S. GAAP requirements.

The proposed amendments can be found here.

The public comment period on the proposed amendments will be open for 60 days following publication of the release in the Federal Register.



Christopher J. Bellini

Chair, Private Equity
Co-Chair, Capital Markets & Securities

(612) 260-9029

To discuss any questions you may have regarding the issues discussed in this Alert, or how they may apply to your particular circumstances, please contact Christopher J. Bellini at (612) 260-9029 or or Ellen Canan Grady at (215) 665-5583 or