The Securities and Exchange Commission recently published guidance providing some useful clarifications related to the Commission's recent changes to the definition of "smaller reporting company" (see our prior posts, here and here). In the guidance, the Commission confirms that foreign issuers can qualify as SRCs; however, investment companies (including BDCs), ABS issuers and majority-owned subsidiaries of non-SRC parent companies cannot. The new definition of SRC becomes effective on September 10, 2018.
Assessing SRC Status. A company assesses whether it qualifies as an SRC annually as of the last business day of its second fiscal quarter. If it qualifies as an SRC on that date, it may elect to use the SRC scaled disclosure accommodations in its subsequent filings, beginning with its second quarter Form 10-Q. A company must reflect its SRC status in its Form 10-Q for the first fiscal quarter of the next year. Reporting companies calculate their public float annually as of the last business day of their second fiscal quarter. A reporting company that does not qualify under the "public float" test would determine whether it qualifies as an SRC based on its annual revenues in its most recent fiscal year completed before the last business day of the second fiscal quarter.
Assessing SRC Status in connection with Initial Registration Statement. A company filing its initial registration statement for shares of common equity will make its initial SRC determination in connection with the filing of its registration statement. Public float is measured as of a date within 30 days of the date of the filing of the registration statement and is computed by multiplying the aggregate worldwide number of shares of voting and non-voting common equity held by non-affiliates before the registration plus, in the case of a Securities Act registration statement, the number of shares of voting and non-voting common equity included in the registration statement by the estimated public offering price of the shares. In the case of a determination based on an initial Securities Act registration statement, a company that determined it was not an SRC has the option to re-determine its status under the "public float" test at the conclusion of the offering covered by the registration statement based on the actual offering price and number of shares sold. A company filing its initial registration statement for common equity that does not qualify under the "public float" test would determine whether it qualifies as an SRC based on its annual revenues in its most recent audited financial statements available on the initial public float calculation date.
Changes in Float/Revenue and Qualification as an SRC. The Commission provides a chart showing how a company can transition and qualify as an SRC depending on changes in its float and/or revenues.
Transitioning to the Amended SRC Definition. For purposes of the first determination of SRC status after September 10, 2018, a company will qualify as an SRC if it meets the initial qualification thresholds in the revised definition as of the date it is required to measure its public float and, if applicable, had annual revenues of less than $100 million in its most recently completed fiscal year, even if such company previously did not qualify as an SRC. A company that completed its initial public offering since the end of its most recent second fiscal quarter may elect to determine whether it qualifies as an SRC based on its public float as of the date it estimated its public float prior to filing or as of the conclusion of the offering based on the actual offering price and number of shares sold. A company newly qualifying as an SRC under the amended definition after September 10, 2018, regardless of whether it qualified under the previous definition, has the option to use the SRC scaled disclosure accommodations in its next periodic or current report due after September 10, 2018, or, for transactional filings without a due date, in filings or amended filings made on or after September 10, 2018.
See the full guidance, including the charts, here.
Originally published August 13, 2018
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2018. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
