United States

SEC expands definition of "smaller reporting company"


On June 28, the SEC voted to raise the thresholds in the definition of “smaller reporting company,” (SRC) expanding the number of companies that qualify for certain existing scaled disclosure accommodations. The final rules enable a company with less than $250 million of public float to provide scaled disclosures, as compared to the $75 million threshold under the prior definition. The final rules also expand the definition to include companies with less than $100 million in annual revenues if they also have either no public float or a public float that is less than $700 million. This reflects a change from the revenue test in the prior definition, which allowed companies to provide scaled disclosure only if they had no public float and less than $50 million in annual revenues. The rules will become effective 60 days after publication in the Federal Register.

Consistent with the previous definition, a company that determines it does not initially qualify as an SRC will remain unqualified until it determines that it meets one or more lower qualification thresholds. The subsequent qualification thresholds are set at 80% of the initial qualification thresholds. 

The final rules also amend Regulation S-X Rule 3-05(b)(2)(iv) such that companies may omit financial statements of businesses acquired or to be acquired for the earliest of the three fiscal years otherwise required by Rule 3-05 if the net revenues of that business are less than $100 million.

The final amendments preserve the current thresholds in the “accelerated filer” and “large accelerated filer” definitions of Exchange Act Rule 12b-2. Therefore, qualifying as an SRC will no longer automatically make a registrant a non-accelerated filer. Companies 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 filing deadlines for periodic reports and the requirement that accelerated filers provide an auditor’s attestation report on management’s assessment of internal control over financial reporting as required by Section 404(b) of the Sarbanes-Oxley Act of 2002. However, the SEC staff has begun to formulate recommendations to the SEC for possible additional changes to the “accelerated filer” definition, which, if adopted would reduce the number of companies that qualify as accelerated filers.