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US Securities and Exchange Commission

Senate Bill Would Extend Emerging Growth Company Status to 10 Years

Bill Flook  Editor, Accounting and Compliance Alert

Bill Flook  Editor, Accounting and Compliance Alert

A Senate Republican introduced legislation that would double the time a public company could retain its emerging growth company (EGC) status under the JOBS Act of 2012. Sec. 1 of pl112-106

The Helping Startups Continue to Grow Act of 2022 is a core part of the agendas of Republicans on both the House Financial Services Committee and Senate Banking Committee. Senator Tim Scott of South Carolina introduced the bill (S. 4992) on Sept. 28, 2022.

The JOBS Act created the EGC designation as a way to ease small companies into the public markets and temporarily shield them from the full accounting and disclosure regime that accompanies SEC registration.

Today, in addition to an exemption from the auditor attestation requirements in Section 404(b) of the Sarbanes-Oxley Act of 2002, EGCs are afforded a host of disclosure benefits, such as an exemption from the Dodd-Frank Act’s pay ratio disclosure rules issued by the SEC in 2015 in Release No. 33-9877Pay Ratio Disclosure, which require companies to disclose a ratio comparing the chief executive’s pay to that of the median employee. EGCs are also freed from the so-called “say-on-pay” advisory votes on executive compensation, and can take advantage of other scaled disclosure requirements, among other benefits.PL111-203

Several conditions can trigger the loss of EGC status. If a company hits $1.235 billion in annual revenue or reaches the five-year anniversary of its initial public offering (IPO) date, it will no longer qualify as an EGC after the end of the fiscal year in which it reached that milestone. A company will also shed its EGC designation if it issues more than $1 billion in non-convertible debt over a three-year period, or reaches a public float of $700 million.

Scott’s bill would amend the Securities Exchange Act of 1934 and Securities Act of 1933 to extend that five-year limit to 10 years.

The measure was included in both the House Financial Services Committee’s GOP capital formation agenda released in late September and Senate Banking Committee Republicans’ “JOBS Act 4.0” package released in April. The Senate package titled the bill as the Emerging Growth Company Extension Act. (See House GOP Floats Bill to Ease Auditor Independence Requirements for Companies Going Public in the Oct. 3, 2022, edition of Accounting & Compliance Alert and Senate Republicans Release ‘JOBS Act 4.0’ Deregulatory Package in the April 6, 2022, edition of ACA.)

The SEC in September issued Release No. 33-11098Inflation Adjustments under Titles I and III of the JOBS Act, adjusting the EGC revenue threshold for inflation, among other changes. (See SEC Adjusts Thresholds for Emerging Growth Companies, Regulation Crowdfunding for Inflation in the Sept. 14, 2022, edition of ACA.)

 

This article originally appeared in the October 13, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.

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