Smaller Reporting Company Scaled Disclosures




Posted by on August 30, 2018

Smaller Reporting Company Scaled Disclosures- 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 SEC disclosure requirements are scaled based on company size.  The SEC established the smaller reporting company category in 2007 to provide general regulatory relief to these entities.  In this and the next Lawcast in this series, I will go over the scaled disclosures, a smaller reporting company can avail itself under Regulations S-K and S-X starting with Regulation S-K.

Item 101 – Description of Business – a smaller reporting company must only include a 3 year discussion instead of 5 years; business development descriptions are also less detailed

Item 201 – Market Price and Dividends – stock performance graphs are not required

Item 301 requiring selected financial data is not required

Item 302 requiring supplementary financial information is not required

Item 303 – Management Discussion and Analysis of Financial Condition and results of operations commonly called MD&A – a smaller reporting company is only required to include 2 years comparisons and discussion of impacts of inflation instead of 3 year; also tabular disclosures of contractual obligations are not required;

Item 305 requiring quantitative and qualitative disclosures of market risks – is not required;

Item 402 – executive compensation disclosures offer multiple concessions – only 3 named executive officers need to be included rather than 5; only 2 years of summary compensation table information is required instead of 3 and the following disclosures are not required at all (i) compensation discussion and analysis; (ii) a table of grants of plan based awards; (iii) a table of option exercises and stock vested; (iv) a pension benefits table; (v) a nonqualified deferred compensation table; (vi) disclosure of compensation policies and practices related to risk management; and (vii) pay ration disclosure.

Item 404 on transactions with related parties does not require smaller reporting companies to provide a description of policies and procedures for review, approval or ratification of related party transactions;

Item 407 on corporate governance – audit committee financial expert disclosure is not required in the first year; compensation committee interlocks and insider participation disclosures are not required; and compensation committee reports are not required

Item 503 – prospectus summary, risk factors and ratio of earnings to fixed charges  – no ratio of earnings to fixed charges disclosure is required and no risk factors are required in Exchange Act reports; and

Item 601 – exhibits – does not require statements regarding the computation of ratios

In the next LawCast in this series I will go through the Regulation S-X scaled disclosure concessions for smaller reporting companies.