In June of 2018, the Securities and Exchange Commission (SEC) adopted amendments that would raise the dollar threshold of smaller reporting companies (SRCs). In effect, this change expands the number of businesses that are eligible to comply with the SEC’s scaled disclosure requirements.
The new SEC smaller reporting company guidelines officially became effective on September 10th. Here, our top-rated Dallas business lawyers provide an overview of the changes and explain the implications for small and mid-sized companies in Texas.
The New Qualification Threshold: Less Than $250 Million ‘Public Float or Less Than $100 Million Revenue
There are two separate criteria that can be used to determine if a company qualifies as an SRC – public float and revenues.
Under the previous definition, companies were required to have a public float of less than $75 million annually to qualify as an SRC. That number has been raised to $250 million. For the purposes of its regulations the SEC defines public float as the aggregate value of all shares (voting and non-voting) that are actively held by non-affiliates.
The threshold for ‘revenue’ has also been amended. Under the previous rules, companies had to have less than $50 million in annual revenue and no public float to meet this criterion. Under the new regulations, companies must have annual revenue that is less than $100 million and they are permitted to have up to $700 million in public float.
If your company meets either standard, it qualifies as an SRC for the purpose of the SEC’s disclosure requirements. It should be noted that a company’s status as an SRC is determined on a yearly basis. If a business has grown in size, it may no longer qualify as a smaller reporting company in the eyes of the SEC. Companies must ensure that they always remain in full compliance with all relevant SEC regulations.
The Goal: Promote Capital Formation, Reduce Compliance Costs
The vote to amend the SRC definition was approved unanimously by the SEC. The purpose of these changes is to encourage capital formation and to reduce compliance costs. As noted by SEC officials, the one-size-fits-all regulatory structure that governed many public companies was not working effectively or efficiently in the modern era. According to estimates produced by the United States Department of the Treasury, nearly 1,000 companies will be affected by this change.
Of course, companies may still choose to voluntarily disclose information to the public. In addition, certain companies may be required to make disclosures under other U.S. laws or regulations such as the Private Securities Litigation Reform Act (PSLRA). It is highly recommended that affected companies consult with a qualified commercial law attorney to ensure that they remain in regulatory compliance and that they are best positioned to take advantage of the regulatory changes.
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At Bennett, Weston, LaJone & Turner, P.C., we are committed to offering top legal representation to business throughout the state of Texas. If you have questions or concerns about the SEC’s updated ‘smaller reporting’ companies’ requirements, please do not hesitate to call our Dallas law office at (214) 691-1776 or (888) 991-1776 to arrange a fully private consultation.