Recently, the Securities and Exchange Commission announced they had adopted amendments to some of its rules to implement inflation adjustments. These adjustments are required in accordance with the Jumpstart Our Business Startups, or JOBS, Act. Under this law, the SEC is required to make specific inflation adjustments to rules under the JOBS Act at least once every five years. These changes will come into effect when they are published on the official Federal Register. All organizations that submit filings to the SEC should consult the Federal Register to take a look at what changes have been made to see how they might impact their day-to-day operations.
Updates To Title I
Under Title I of the JOBS Act, one of the most important terms is “emerging growth company,” or EGC. Under this definition, the SEC is required to make adjustments to this category, changing the thresholds to reflect the current state of the market. Adjusted gross revenue is usually used to determine whether a company falls under the status of EGC. Because inflation has a significant impact on how quickly a company can grow, the revenue it generates, and its position in the market, what constitutes an “emerging growth company” 60 years ago is no longer the same as what constitutes this type of company today. As a result, the SEC is continuously expected to adjust this definition to reflect current industry standards.
Some of the changes that impact EGCs include:
- The SEC added Securities Act Section 2(a)(19) and Exchange Act Section 3(a)(80), defining EGC.
- Inflation has changed significantly in the Consumer Price Index (CPI), changing reporting thresholds.
- The SEC changed the inflation-adjusted annual gross revenue threshold for EGCs from $1,070,000,000 to $1,235,000,000.
Any company that falls under the EGC category may have to file certain documents, so it is important to take a look at revenue reporting to see whether a company meets this threshold and is subject to certain requirements.
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Updates To Title III
In addition, the SEC has made updates to Title III of the JOBS Act. Title III provides an exemption from certain registration requirements, particularly those found under Securities Act Section 5. These restrictions are related to crowdfunding transactions. Because of changes in the Consumer Price Index, the SEC has made adjustments, changing which companies are exempt from these registration requirements. Dollar amounts have been adjusted, and they will be reported on the Federal Register. Companies that engage in crowdfunding activities and related transactions may want to take a look at the new thresholds to see if they are exempt from certain registration requirements.
Why Are These Updates Necessary?
The SEC has already announced that these changes are going to go into effect, and they will become official as soon as they are published on the Federal Register. While it can be frustrating for companies to keep up with changes, they usually take place every five years. They are necessary because inflation can change the purchasing power that these companies have. A company that brought in $10 million annually in revenue today is not nearly as large or as powerful as a company that brought in $10 million in revenue annually in the 1920s. Therefore, the government, including the SEC, believes it is important to adjust reporting requirements and regulatory thresholds to reflect inflationary changes.
Ensure Your Company Complies With All Registration and Reporting Requirements
Because the SEC can change exemptions, restrictions, and reporting requirements from time to time, you should work with an SEC Filing Agent that can help you stay on top of all SEC reporting requirements. At Colonial Filings, it would be our pleasure to help you with exactly that. Contact us today to learn more about our services.
