SEC Increases Smaller-Reporting-Company Threshold

By: Philip A. Theodore

July 2, 2018

On June 28, 2018, the Securities and Exchange Commission adopted final rules amending the definition of “smaller reporting company” to extend the benefit of the smaller-reporting-company reporting regime to more registrants[1]. As amended, the definition now includes companies with a public float of less than $250 million. Previously, smaller-reporting-company status was accorded to companies with a public float of less than $75 million. The final rules also amended the annual-revenue test to extend smaller-reporting-company status to companies with less than $100 million of annual revenues (an increase from the $50 million threshold in the previous definition) and either no public float or less than $700 million of public float. The following table compares the current and revised definitions of “smaller reporting company”[2]:

Criteria

Current Definition

Revised Definition

Public Float

Public float of less than $75 million

Public float of less than $250 million

Revenue

Less than $50 million of annual revenue and no public float

Less than $100 million of annual revenue and

· No public float or

· Public float of less than $700 million


Smaller-reporting-company status is determined as of the last day of the registrant’s fiscal second quarter.[3] If a registrant that once qualified as a smaller reporting company fails to do so, it would remain unqualified until its public float or revenue falls below another, lower threshold. The values of the lower thresholds are 80 percent of the values of the definitional tests. Therefore, if a registrant that qualified as a smaller reporting company because its public float was less than $250 million has a public float that exceeds such amount as of the last day of its fiscal second quarter, it will not qualify for smaller-reporting-company status so long as its public float remains $200 million or more. The following table sets forth the qualification thresholds under the amended revenue test after one or both thresholds have been exceeded[4]:

Prior Annual Revenue

Prior Public Float

None or less than $700 million

$700 million or more

Less than $100 million

Neither threshold exceeded

Public float: Less than $560 million

Revenue: Less than $100 million

$100 million or more

Public float: None or less than $700 million

Revenue: Less than $80 million

Public float: Less than $560 million

Revenue: Less than $80 million


The final rules include amendments to the definitions of “accelerated filer” and “large accelerated filer” that revoke the automatic exclusion of smaller reporting companies from the definitions.[5] As a result, registrants that now qualify as smaller reporting companies because their public float is less than $250 million but more than $75 million will remain accelerated filers. Likewise, it is possible that a registrant that qualifies as a smaller reporting company may also qualify as a large accelerated filer[6].

Resources:
[1] Amendments to Smaller Reporting Company Definition, Release No. 33-10513 (the “Adopting Release”).
[2] Adopting Release at 11.
[3] 17 C.F.R. §230.405.
[4] Adopting Release at 24.
[5] Adopting release at 30.
[6] This unlikely event is explained in footnote 132 of the Adopting Release: “The only registrants that would qualify as both [smaller reporting companies] and large accelerated filers would be those companies (1) that previously qualified as large accelerated filers because at one time their public float was $700 million or more, (2) whose revenues for the most recent fiscal year were less than $100 million, and (3) whose public float as of the end of the most recent second quarter was less than $560 million, such that they now qualify as [smaller reporting companies] but not less than $500 million, such that they are not eligible to exit large accelerated filer status.”

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