The Securities and Exchange Commission (SEC) recently proposed amendments for the definitions of both an “accelerated filer” and “large accelerated filer” under the Securities Act Rule 405, Exchange Act Rule 12b-2, and Item 10(f) of Regulation S-K.
Prior Smaller Reporting Company Definition Amendments
Last year, the SEC amended the definition of a smaller reported company (SRC) to now include companies that have less than $250 million in public float. They did not amend the definitions of either an accelerated filer or large accelerated filer at the time but promised to do so in the future.
However, the previous amendments to SRCs mandated that companies with $75 million or more of public float and qualified as SRCs were still subject to some of the applicable requirements to accelerated filers or large accelerated filers. Most notably, they were subject to the accelerated timeline for filing periodic reports. The prior SRC amendments caused an overlap in the accelerated and large filer categories, in that companies with a public float of $75 million+ but less than $250 million (regardless of revenue), or one with less than $100 million in annual revenue with a public float of $250 million+ but less than $700 million, would be classified as both an SRC and accelerated filer.
The SEC recently proposed amendments to increase the public float threshold for accelerated filers to be classified and reduced down to a non-accelerated filer from $50 million to $60 million. To be classified as an exiting large accelerated filer, the threshold has been increased from $500 million to $560 million. There was also be an added revenue test for the transition thresholds. These amendments are designed for companies that have delayed completing an IPO, in the hopes that these new amendments will help smaller companies better acquire capital.
The new amendments would allow any company that is eligible to be classified as an SRC with less than $100 million in annual revenues, in the prior fiscal year, to be excluded from being classified as either an accelerated or large accelerated filer. In addition, smaller reporting companies with less than $100 million in revenue would no longer be required to provide proof of their internal control over financial reporting (ICFR) from an outside independent auditor. However, these companies are not exempt from the independent audit committee requirements, CEO and CFO certifications of financial reports, and the established and maintained effectiveness of their ICFR as mandated by the Sarbanes-Oxley Act of 2002.
The amendments would also allow accelerated and large accelerated filers to become non-accelerated filers if they are eligible to be classified as an SRC. The SEC hopes that these amendments will encourage companies to access public markets more.
The amendments will be subject to a 60-day public comment period.
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