SEC changes filing cover pages, raises thresholds for EGCs and crowdfunding

Corporate Governance Alert

  • Michael J. Stein

The SEC has adopted a number of technical amendments to the Jumpstart Our Business Startups Act (the JOBS Act) to conform its existing rules and regulations to the requirements of the JOBS Act and implement statutory inflation adjustments.

The JOBS Act, signed into law in April 2012, was designed to encourage startup funding by easing federal regulations of small businesses.

In this alert, we summarize the new technical amendments and offer an action item to consider when filing forms under the Securities Act of 1933 and the Securities Exchange Act of 1934.

The JOBS Act, among other things, exempts an "emerging growth company," or an EGC, from various disclosure and regulatory requirements of the Securities Act and the Exchange Act. To qualify as an EGC, the company must have had total gross revenues of less than $1.07 billion (as now adjusted for inflation) during its most recently completed fiscal year.

An EGC is permitted to include only two years of audited financial statements in its initial public offering (IPO) registration statement; provide Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) disclosures that correspond to the financial statements included in its IPO registration statement; omit selected financial data for any period prior to the earliest audited period included in its IPO registration statement; comply with the executive compensation disclosure requirements applicable to smaller reporting companies; and defer compliance with any new or revised financial accounting standards until such standards are applicable to companies that are not subject to SEC reporting.

In addition, an EGC is exempt from the advisory shareholder vote on compensation of the company's named executive officers ("say-on-pay"), the frequency of the say-on-pay vote, golden parachute compensation arrangements and the Section 404(b) auditor attestation on management's assessment of the company's internal controls.

The technical amendments provide a uniform method for an EGC to notify the SEC and the public that it has elected to be treated as an EGC and of its decision as to whether to opt out of the extended transition period for complying with new or revised accounting standards by adding two check boxes to the cover pages of certain Securities Act and Exchange Act forms. One of the boxes indicates whether, at the time of filing, the issuer is an emerging growth company; the other indicates whether the issuer has elected to use the extended transition period for an emerging growth company to comply with any new or revised financial accounting standards.

Specifically, the cover pages of the following forms have been modified to conform to the JOBS Act requirements: Securities Act forms S-1, S-3, S-4, S-8, S-11, F-1, F-3 and F-4 and Exchange Act forms 10, 8-K, 10-Q, 10-K, 20-F and 40-F.

Information about changes to these forms can be found in the adopting releaseIt is important to note that the cover page changes apply to all issuers, not just EGCs.

Finally, as required by the JOBS Act, the SEC implemented the statutory inflation adjustments and increased the total annual gross revenue eligibility threshold to qualify as an EGC from $1 billion to $1.07 billion and increased the maximum aggregate amount an issuer can sell under Regulation Crowdfunding from $1 billion to $1.07 billion.

Action item

  • All issuers (ECGs and non-ECGs) should revise the cover page of the applicable Securities Act and Exchange Act forms to include the two new ECG notification requirements.

The new forms are currently available on the SEC's Division of Corporation Finance webpage, under Filing and Disclosure Requirements, at the "Forms" tab.

Find out more about the implications of these changes to the JOBS Act by contacting the author or your DLA Piper attorney.