These amendments are intended to promote capital formation and reduce compliance costs for smaller companies while maintaining appropriate investor protections.

The new smaller reporting company definition, first introduced in 2008, enables a company with less than $250m (£190m) of public float to provide scaled disclosures, up from the $75m threshold under the prior definition.  The final rules also expand the definition to include companies with less than $100m in annual revenues if they also have either no public float or a public float that is less than $700m. 

This reflects a change from the revenue test in the prior definition, which allowed companies to provide scaled disclosure only if they had no public float and less than $50m in annual revenues. 

The amendments to Rule 3-05(b)(2)(iv) of Regulation S-X increase the net revenue threshold in that rule from $50m to $100m. As a result, companies do not have to release financial statements for businesses acquired or to be acquired for the earliest of the three fiscal years otherwise required by Rule 3-05 if the net revenues of that business are less than $100m.

The rules will become effective 60 days after publication in the Federal Register in the US.

The SEC estimates that 966 additional companies will be eligible for smaller reporting company (SRC) status in the first year under the new definition. 

The amendments do not change the threshold in the ‘accelerated filer’ definition that requires, among other things, that filers provide the auditor’s attestation of management’s assessment of internal control over financial reporting. 

SEC staff are formulating a set of recommendations for possible additional changes to the ‘accelerated filer’ definition to reduce the number of companies that qualify as accelerated filers in order to further reduce compliance costs for those companies.

‘I want our public capital markets to be a place where smaller companies can thrive and thereby provide our Main Street investors with more access to investing options where our public company disclosure rules and protections apply,’ said SEC chairman Jay Clayton.

‘Expanding the smaller reporting company definition recognises that a one size regulatory structure for public companies does not fit all. 

‘These amendments to the existing SRC compliance structure bring that structure more in line with the size and scope of smaller companies while maintaining our long-standing approach to investor protection in our public capital markets. 

‘Both smaller companies - where the option to join our public markets will be more attractive - and Main Street investors - who will have more investment options - should benefit.’

Report by Sara White