On May 3, 2012, the SEC issued additional FAQs (Questions 18-41) on Title I (IPO on Ramp) of the JOBS Act clarifying various issues related to emerging growth companies (EGCs). Highlights of the FAQs are presented below.

EGC Status

Subject to certain conditions, a company may continue to be an EGC until the last day of the fiscal year following the fifth anniversary of its IPO. FAQs explain that this date is determined by looking to the fiscal year during which the fifth anniversary occurs. The last day of this fiscal year will be the first day that the company is a non-emerging growth company, provided that none of the other disqualifying conditions have been triggered. For example, if an issuer with a December 31 fiscal year-end first sold common equity securities in an IPO on May 2, 2012, it would cease to be an EGC no later than December 31, 2017).

A company will cease to be an EGC on the date on which the company has issued more than $1 billion in non-convertible debt during the previous three-year period. FAQs clarify that the SEC will not object if a company does not count debt securities issued in an A/B exchange offer towards the foregoing $1 billion debt limit because these debt securities are identical to (other than the fact that they are not restricted securities) and replace those issued in the non-public offering.

FAQs also provide that the company that conducted its IPO as an EGC may not regain its status as an EGC after losing that status.

EGC Qualifications

The following companies would not qualify as an EGC:

  • asset-backed securities issuer;
  • investment company registered under the Investment Company Act; and
  • a company that is a successor to the company's Exchange Act reporting obligations where the predecessor was not eligible to be an EGC because its first sale of common equity securities pursuant to a registration statement occurred on or before December 8, 2011.

However, a business development company may qualify as an EGC.

Confidential Treatment

  • Staff Comment Letters and Issuer Responses to Such Letters. The SEC clarified that it will publicly release its comment letters and issuer responses to staff comment letters on EDGAR no earlier than 20 business days following the effective date of a registration statement. However, to assist the SEC in this process, an EGC will have to resubmit, on EDGAR, its response letters to staff comment letters on confidential draft registration statements, using the submission type "CORRESP," when it first files its registration statements on EDGAR.
  • Information for Which an EGC Intends to Seek Confidential Treatment. An EGC should identify information for which it intends to seek confidential treatment when it submits its responses to staff comments on confidential draft registration statements. When the company resubmits its responses to staff comments on the confidential draft registration statement on EDGAR, it should follow Rule 83 procedures. Alternatively, the company could follow Rule 83 procedures at the time it submits its response letters to the staff.
  • Confidential Submission of Form S-4 or F-4. An EGC may use the confidential submission process to submit a draft registration statement for an A/B debt exchange offer on Form S-4 or on Form F-4, provided its initial public offering date has not yet occurred. An EGC must publicly file the Form S-4 or Form F-4 for its A/B debt exchange offer at least 21 days before its anticipated date of effectiveness.

Disclosure Guidance

  • Ratio of Earnings to Fixed Charges. An EGC will not be required to disclose the ratio of earnings to fixed charges in a registration statement for periods prior to those included in the selected financial data.
  • XBRL Requirements. An EGC is required to comply with XBRL requirements.
  • Management's Discussion and Analysis. An EGC that is not also a smaller reporting company is not permitted to comply with the smaller reporting company version of Item 303 of Regulation S-K. However, the JOBS Act permits an EGC, in its MD&A, to discuss only those audited periods presented in its audited financial statements. Therefore, if in the IPO registration statement, an EGC's audited financial statements cover only two years, then the EGC can limit its MD&A discussion to those two years.
  • Form 10-K or 20-F. For an EGC that is not a smaller reporting company, three years of audited financial statements are required to be included in its Form 10-K or Form 20-F. As a practical matter, the SEC explains, an EGC will not have to provide audited financials for periods earlier than those presented in its IPO registration statement.

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