SEC Proposes Amendments To Acquisitions And Dispositions Of Businesses
In May of this year, the SEC proposed amendments to the financial statements and other disclosure requirements related to the acquisitions and dispositions of businesses. In September 2015, the SEC issued a request for public comment related to disclosure requirements for entities other than the reporting company itself, including subsidiaries, acquired businesses, issuers of guaranteed securities and affiliates. See my blog HERE. Taking into account responses to portions of that request for comment, in the summer of 2018, the SEC adopted final rules to simplify the disclosure requirements applicable to registered debt offerings for guarantors and issuers of guaranteed securities, and for affiliates whose securities collateralize a company’s securities. See my blog HERE.
The SEC is now proposing amendments to Rules 3-05, 3-14, and Article 11 of Regulation S-X and adding new Rule 6-11. The amendments would also make several related conforming rule and form changes. Rule 3-05 was included in the September 2015 request for comment. Like
SEC Proposes Amendments To Regulation S-K
On August 8, 2019, the SEC canceled a public meeting which was slated to talk about proposed changes to disclosures related to business descriptions, legal proceedings and risk factors under Regulation S-K and instead, on the same day, issued proposed rule changes. The proposed changes continue the SEC’s ongoing disclosure effectiveness initiative. My ongoing running summary of proposed and implemented rule amendments, concept releases, reports and other relevant information related to disclosure changes can be found at the end of this blog.
The proposed changes take a more principles-based approach to business descriptions and risk factors, recognizing the significant changes in business models since the rule was adopted 30 years ago. The proposed amendments to disclosures related to legal proceedings continues the current prescriptive approach. In addition, the proposed rule changes are intended to improve the readability of disclosure documents, as well as discourage repetition and disclosure of information that is not material.
Item 101 – Description of Business
SEC Amends Definition of “A Smaller Reporting Company”
On June 28, 2018, the SEC adopted the much-anticipated amendments to the definition of a “smaller reporting company” as contained in Securities Act Rule 405, Exchange Act Rule 12b-2 and Item 10(f) of Regulation S-K. The amendments come almost two years to the day since the initial publication of proposed rule changes (see HERE).
Among other benefits, it is hoped that the change will help encourage smaller companies to access US public markets. The amendment expands the number of companies that qualify as a smaller reporting company (SRC) and thus qualify for the scaled disclosure requirements in Regulation S-K and Regulation S-X. The SEC estimates that an additional 966 companies will be eligible for SRC status in the first year under the new definition.
As proposed, and as recommended by various market participants, the new definition of a SRC will now include companies with less than a $250 million public float as compared to the $75 million
The SEC Provides Further Guidance On Financial Statement Requirements In Registration Statements
On August 17, 2017, the SEC issued guidance on financial statement requirements for confidential and public registration statement filings by both emerging growth companies (EGC) and non-emerging growth companies. The new Compliance and Disclosure Interpretations (C&DI’s) follow the SEC’s decision to permit all companies to submit draft registration statements, on a confidential basis (see HERE). The newest guidance is in accord with the SEC’s announced policy to take active measures to promote the U.S. IPO market and small business capital-raise initiatives.
Earlier in the summer, the SEC expanded the JOBS Act benefit available to emerging growth companies, to be able to file confidential draft registration statements, to all companies. Confidential draft submissions are now available for all Section 12(b) Exchange Act registration statements, initial public offerings (IPO’s) and for secondary or follow-on offerings made in the first year after a company becomes publicly reporting.
Title I of the JOBS Act initially allowed for confidential draft submissions of registration