On June 28, 2018, the U.S. Securities and Exchange Commission ("SEC") unanimously voted to adopt amendments to the definition of "smaller reporting company" ("SRC") to expand the number of issuers that qualify for certain existing scaled disclosure accommodations under the federal securities laws.

Under current rules, an issuer would qualify as an SRC if it has either a public float of less than $75 million1, or if it has less than $50 million of annual revenues and no public float.2 The SEC is amending the SRC definition to substantially increase these thresholds. Specifically, as a result of the new rules, an issuer would qualify as an SRC if: (i) it has a public float of less than $250 million; or (ii) it has annual revenues of less than $100 million and either (A) no public float (either because it has no public common equity outstanding or no market price for its common equity exists) or (B) a public float of less than $700 million.

An issuer that determines that it does not qualify as an SRC under the new initial qualification thresholds will remain unqualified for SRC status unless and until it determines that it meets one or more lower qualification thresholds, which are set at 80% of the initial SRC qualification thresholds. As per the amendments, an issuer that previously did not qualify as an SRC because its public float was $250 million or more would qualify as an SRC if it has a public float of less than $200 million, regardless of revenues. Further, once an issuer with a public float determines that it does not qualify as an SRC because it exceeds either or both of the $100 million annual revenue and $700 million public float thresholds, it will remain unqualified unless and until it meets a lower threshold for the criteria on which it previously failed to qualify ($80 million of annual revenue and $560 million of public float, respectively) and continues to meet any threshold it previously satisfied ($100 million of annual revenue or $700 million of public float, respectively).

According to the SEC's press release announcing the adoption of the amendments, the SEC estimates that 966 additional companies will be eligible for SRC status in the first year under the new SRC definition, including 779 companies with a public float of $75 million or more and less than $250 million, 161 companies with a public float of $250 million or more and less than $700 million and revenues of less than $100 million, and 26 companies with no public float and revenues of $50 million or more and less than $100 million.

At the same time that the SEC adopted the amendments to the SRC definition described above, the SEC also adopted amendments to the "accelerated filer" and "large accelerated filer" definitions contained in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to preserve the application of the current public float thresholds in those definitions. As a result, issuers with $75 million or more of public float that qualify as SRCs will remain subject to the requirements that apply to accelerated filers, including the timing of the filing of periodic reports and the requirement that accelerated filers provide the auditor's attestation of management's assessment of internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act of 2002. However, the Chairman of the SEC has directed the SEC staff to formulate recommendations for possible additional changes to the "accelerated filer" definition that, if adopted, would have the effect of reducing the number of registrants that qualify as accelerated filers in order to promote capital formation by reducing compliance costs for certain registrants, while maintaining appropriate investor protections.

In connection with the foregoing amendments, conforming changes were made to the cover pages for periodic reports filed under the Exchange Act (e.g., Form 10-Q and Form 10-K) and registration statements filed under the Securities Act of 1933, as amended (e.g., Forms S-1, S-3, S-4, S-8, S-11 and Form 10), to delete the parenthetical regarding SRCs that followed the non-accelerated filer checkbox.

The amendments will become effective 60 days after publication in the Federal Register.


[1] Consistent with the current definition, public float is computed under the final rules by multiplying the aggregate worldwide number of shares of a registrant's voting and non-voting common equity held by non-affiliates by the price at which the common equity was last sold, or the average of the bid and asked prices of common equity, in the principal market for the common equity.

[2] Consistent with the current definition, the smaller reporting company definition in the final rules specifically excludes investment companies, asset-backed issues (as defined in Item 1101 of Regulation AB) and majority-owned subsidiaries of a patent that is not a smaller reporting company.

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