The SEC Proposed Changes to the Definition of a Smaller Reporting Company

On June 27, 2016, the SEC issued proposed rule amendments that would increase the financial thresholds in the definition of smaller reporting company as used in the SEC’s rules and regulations. If adopted, the proposal would expand the number of registrants that qualify as SRCs.

Under the proposed rule amendments, a company would qualify as an SRC if it is not an excluded issuer and has either:

  • Less than $250 million in public common equity float as of the last business day of their most recently completed second fiscal quarter.
  • For companies with a zero public common equity float, less than $100 million in revenue during its previous fiscal year.

A company that loses SRC status:

  • Because its public common equity float increases above $250 million would not be able to regain SRC status until it could determine that its public common equity float fell below $200 million as of the last business day of its second fiscal quarter.
  • Because its annual revenue exceeds $100 million and it has zero public common equity float would not be able to regain SRC status until it could determine that its annual revenue fell below $80 million for the preceding fiscal year.

The proposed rules would also amend the definitions of accelerated filer and large accelerated filer to eliminate the provision in each that specifically excludes SRCs but would preserve the provision regarding the size of companies that are subject to the accelerated filer disclosure and filing requirements. As a result, companies with $75 million or more of public common equity float would maintain SRC status under the amended definition, but would become subject to the requirements that apply currently to accelerated filers, including the:

  • Reduced timing to file periodic reports.
  • Requirement that accelerated filers provide the auditor’s attestation of management’s assessment of internal controls over reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002.

The proposed rule amendments do not affect the scope of existing SRC scaled disclosure requirements.

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