SEC Adopts Amendment to Simplify Reporting Requirements for EGCS and SRCSJanuary 21, 2016
On January 13, 2016, the Securities and Exchange Commission (SEC) adopted “interim final amendments” to its rules and forms, simplifying certain reporting requirements for emerging growth companies (EGCs) and smaller reporting companies (SRCs), as required by Sections 71003 and 94001 of the “Fixing America’s Surface Transportation Act” (FAST Act). The new amendments (1) permit EGCs to omit financial information for certain periods from their registration statements; and (2) permit SRCs to utilize forward incorporation by reference in their registration statements. These changes are intended to reduce the regulatory burden on EGCs and SRCs and thereby promote efficiency and reduce costs in small business capital formation.
Revisions to Form S-1 and Form F-1 Regarding Historical Financial Information for EGCs
The amendments that implement Section 71003 of the FAST Act permit an EGC that is filing a registration statement on Form S-1 or Form F-1 to omit certain historical financial information otherwise required by Regulation S-X of the Securities Act, easing the disclosure obligations on EGCs and reducing registration costs. Specifically, an EGC will now be allowed to omit financial statements that it “reasonably believes” will not be required at the time of the contemplated offering, provided that prior to the distribution of a preliminary prospectus to investors, the registration statement includes all required financial information. For example, under the new rules, an EGC that submits its registration statement in December 2016, but does not expect to consummate the offering until spring of 2017, would not be required to include audited financial statements for 2014 in that registration statement because, at the time the offering is marketed, only 2015 and 2016 audited financial statements would be required.
Revisions to Form S-1 to Permit Forward Incorporation by SRCs
The amendments that implement Section 94001 of the FAST Act revise Form S-1 to permit forward incorporation by SRCs, allowing an SRC to automatically incorporate by reference into its registration statements reports filed after the effective date of such registration statement. This change reduces the disclosure burden on SRCs by eliminating the need to file post-effective amendments to update information in a filing that thereafter becomes stale or incomplete. In order to use forward incorporation by reference, SRCs must first meet all of the existing eligibility requirements and conditions currently in place for any issuer to use historical incorporation by reference for documents filed prior to the effective date of the registration statement. For example, an SRC must have filed (1) an annual report for its most recently completed fiscal year, and (2) all required Exchange Act reports and materials during the immediately preceding 12 months (or applicable shorter period for which the SRC was required to file such materials). The availability of forward incorporation by reference is further subject to the SRC making its Exchange Act reports and materials accessible on a website maintained by the SRC, and disclosure by the SRC in its prospectus that such materials will be provided upon request. Smaller reporting companies that are blank check companies, shell companies (other than business combination related shell companies), or issuers for offerings of penny stocks are not permitted to use forward incorporation by reference.
Effective Date and Comment Period
The interim final amendments became effective on January 19, 2016. The SEC is accepting comments on the rules until February 18, 2016 and has specifically requested input regarding whether the changes should be made available to other registrants and/or for additional form types, in addition to any general comments or suggested changes to the interim final amendments.
For any questions or greater clarity on the new rules, please contact the Hinckley Allen attorney with whom you regularly work or one of the following securities lawyers: William W. Bouton, James R. Burke, Margaret D. Farrell, or Sarah M. Lombard.
1. An “emerging growth company” is defined as an issuer with less than $1 billion in total annual gross revenues during its most recently completed fiscal year.
2. A “smaller reporting company” is defined as an issuer that had a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter or had annual revenues of less than $50 million during the most recently completed fiscal year for which audited financial statements are available.