SEC Proposes Expansion of Qualification Requirements for Smaller Reporting Companies

The SEC proposed amendments that would increase the financial thresholds in its definition of "smaller reporting company." The proposal would allow a greater number of registrants to fall within that definition and qualify for certain scaled disclosures provided in Regulation S-K and Regulation S-X. The SEC asserted that the rules are intended to promote capital formation, reduce compliance costs for smaller registrants, and maintain investor protections.

In order to qualify as a "smaller reporting company" under the proposal, registrants must have (i) less than $250 million in public float, or (ii) zero public float, if their revenues fell below $100 million in the previous year.

In addition, the proposed amendments would increase the public float threshold from $50 million to $200 million for registrants that were determined not to qualify as smaller reporting companies previously. The proposed amendments also would eliminate provisions in the "accelerated filer" and "large accelerated filer" definitions that specifically exclude registrants that are eligible to use the smaller reporting company requirements under Regulation S-K for their annual and quarterly reports, which in turn would preserve the application of the current thresholds contained in those definitions.

In light of the "mixed findings" revealed in a study written by its staff, the SEC announced that it is requesting comments on whether to raise the accelerated filer public float threshold or to modify the Section 404(b) requirements for registrants with a public float between $75 million and $250 million.

Comments on the proposed amendments must be received within 60 days after the amendments' publication in the Federal Register.