On March 31, 2017, the SEC adopted amendments to its rules to reflect an inflation-adjusted threshold in the definition of the term “emerging growth company” (an EGC).1 Currently, an EGC is defined to mean, among other things, an issuer that had total annual gross revenues of less than $1,000,000,000 in its last fiscal year. The SEC is revising the EGC definition under Rule 12b-2 to mean an issuer that had total annual gross revenues of less than $1,070,000,000. The SEC is required every five years to index to inflation the annual gross revenue amount used to determine EGC status to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics.
In addition to the inflation adjustment for the annual revenue cap, the SEC is also making some minor revisions to its forms in connection with EGCs. Under the JOBS Act, an EGC may defer compliance with certain new or revised financial accounting standards unless it elects to opt-out and notifies the SEC in its first periodic report or registration statement of its choice. The election is irrevocable and the issuer must comply with all new or revised accounting standards to the same extent that a non-EGC is required to comply with such standards and continue to do so for as long as the issuer remains an EGC. Previously, EGCs have provided the required opt-out notice in different locations in the applicable disclosure forms. To provide a uniform method of notice, the SEC adopted changes to the cover pages of Securities Act Forms S-1, S-3, S-4, S-8, S-11, F-1, F-3 and F-4 and Exchange Act Forms 10-K, 10-Q and 8-K, as well as Forms 10, 20-F and 40-F, to include new check boxes for an issuer to indicate whether, at the time of filing, it (1) is an EGC and (2) has elected not to use the extended transition period for an EGC to comply with new or revised financial accounting standards.
The amendments will become effective once published in the Federal Register, which is expected to occur in the next several days.
For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors.
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1Inflation Adjustments and Other Technical Amendments Under Titles 1 and III of the JOBS Act, Release Nos. 33-10332; 34-80355; File No. S7-09-16 (March 31, 2017), available here.
