I’m attorney Laura Anthony founding partner
of Legal & Compliance, a full service corporate, securities, and business transactions law
firm. Today is the continuation in a LawCast series
talking about the new amendment to the SEC definition of a smaller reporting company. On June 28, 2018, the SEC adopted the much
anticipated amendments to the definition of a smaller reporting company as contained in
Securities Act Rule 405, Exchange Act Rule 12b-2 and Item 10(f) of Regulation S-K. The topic of disclosure requirements under
Regulation S-K as pertained to disclosures made in reports and registration statements
filed under both the Exchange Act and Securities Act have come to the forefront over the past
couple of years. Regulation S-K, as amended over the years,
was adopted as part of a uniform disclosure initiative to provide a single regulatory
source related to non-financial statement disclosures and information required to be
included in registration statements and reports filed under the Exchange Act and the Securities
Act. A public company with a class of securities
registered under either Section 12 or which is subject to Section 15(d) of the Exchange
Act must file reports with the SEC. The underlying basis of the Reporting Requirements
is to keep shareholders and the markets informed on a regular basis in a transparent manner. Over the years Regulation S-K has not been
kept current with other Rule changes, and arduous reporting requirements for smaller
companies has resulted in stifled capital formation and fewer smaller IPOs, and investors
have questioned the quality and relevancy of information required to be included in
reports. The SEC disclosure requirements are scaled
based on company size. The SEC established the smaller reporting
company category in 2007 to provide general regulatory relief to these entities. Prior to this rule change that I’m speaking
about, a smaller reporting company was defined in the Securities Act rule 405 exchange after
all 12B2 and Item 10F of regulation S-K as one that has a public flow of less than $75
million as of the last day of their recently completed second fiscal quarter or a zero
public float and annual revenues of less than $50 million during the most completed fiscal
year for which audited financial statements are available. As indicated in Part 1 in this LawCast series
the new definition of a smaller reporting company will now include companies with less
than a $250 million public flow as compared to the $75 million threshold in the prior
definition. In addition, if a company does not have an
ascertainable public flow, or has a public of less than $700 million, a smaller reporting
company will be less than a $100 million in annual revenues during its most recently completed
fiscal year. The SEC has competing goals of protecting
investors in the marketplace through requiring companies to provide disclosure needed to
make informed investment decisions and boating decisions, and on the other hand to promote
capital formation and reduce compliant costs for smaller companies. The SEC believes that by raising the financial
threshold for the smaller reporting companies definition and thereby expanding the number
of companies eligible to use the available scaled disclosure it will be satisfying its
goals and appropriately responding to comments and recommendations by the advisory committee
on small and emerging growth companies, the SEC government business forum on small business
capital formation. Congress and industry commentators. The SEC summarizes many of these recommendations,
initiatives and comments in its rural belief. For example, in September 2015 the SEC Advisory
Committee on small and emerging companies met and finalized its recommendations to the
SEC regarding changes to the disclosure requirements for smaller reporting companies and smaller
traded companies. The Fast Act which was passed into law on
December 4th 2015 required the SEC to scale or eliminate, duplicative antiquated or unnecessary
disclosure requirements for emerging growth companies accelerated filers, smaller reporting
companies and other smaller issuers in Regulation S-K. I’m securities attorney Laura Anthony, founding
partner of Legal & Compliance, and producer of LawCast. Should you have any questions about today’s
topic, please visit SecuritiesLawBlog.com and LawCast.com, or contact me directly. Inquiries of a technical nature are always
encouraged.

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