by Cydney Posner
The SEC has adopted a number of inflation-related adjustments under the JOBS Act, including an adjustment to the revenue cap in the definition of “emerging growth company,” as well as adjustments to the dollar amounts in Reg Crowdfunding. A number of technical amendments were also adopted to conform various rules and forms to self-executing changes effected when the JOBS Act was signed into law. The various amendments will become effective upon publication in the Federal Register.
Currently, an EGC is defined to mean, among other things, an issuer that had total annual gross revenues of less than $1 billion. Under the JOBS Act, the SEC is required, every five years, to index to inflation that annual gross revenue limit to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics. As adjusted, the new inflation-adjusted EGC revenue cap will be $1,070,000,000. (If you’re interested, the release goes into the mechanics of the calculation at great length.)
A similar inflation adjustment, also required by the JOBS Act, is being implemented with respect to the dollar amounts used in connection with offering maximum, offering thresholds and investment limits in the crowdfunding exemption under Reg Crowdfunding.
Under the JOBS Act, an EGC does not have to comply with any new or revised financial accounting standards unless and until the standard is likewise applicable to private companies, unless it elects — and notifies the SEC of its election — in its first Exchange Act periodic report or registration statement, to comply with financial accounting standards applicable to non-EGCs. In that event, the election is irrevocable and it must comply with all of those standards for as long as it is an EGC. This provision is intended to allow EGCs additional time to apply accounting updates. Currently, EGCs have provided the required notice in different locations in the applicable forms. To afford a uniform method for an EGC to provide this notice, the SEC adopted revisions to a number of Securities Act and Exchange Act forms to modify the cover pages of those forms to include two check boxes for an issuer to indicate whether, at the time of the filing, the issuer is an EGC and whether it has elected not to use the extended transition period for complying with any new or revised financial accounting standards.
In addition, the SEC adopted technical amendments to conform various rules and forms to a number of self-executing changes in the Securities Act and the Exchange Act that became effective when the JOBS Act was signed into law. For example, Item 301 of Reg S-K is being amended to clarify that, in its IPO registration statement (in addition to subsequent registration statements), an EGC need not present selected financial data for any period prior to the earliest audited period presented in the IPO registration statement. (The Corp Fin staff has already provided guidance to that effect in question 11 of its 2012 CDIs.) Similarly, the SEC adopted amendments to Instruction 1 to Item 303(a) specifying that, if an EGC provides audited financial statements for two years in its IPO registration statement, it may also provide an MD&A discussion for its two most recent fiscal years. Item 402(l) of Reg S-K is likewise being amended to provide that, like Smaller Reporting Companies, EGCs are permitted to provide the scaled executive compensation disclosure in Items 402(m) to (r) of Reg S-K. The SEC also adopted conforming amendments to Rule 14a-21 and Item 402(t) and Instruction 1 to Item 1011(b) of Reg S-K providing that an EGC is not required to conduct shareholder advisory votes on say on pay, say on frequency or golden parachutes. For foreign private issuers that qualify as EGCs, the amendments also revise the disclosure requirements to correspond with the disclosure relief provided under the JOBS Act for EGCs.