The SEC is required to make adjustments to the JOBS Act rules at least once every five years. To effectuate inflation adjustments required under Titles I and III of the JOBS Act, the SEC is adopting new rules that include an inflation-adjusted threshold in the definition in the term “emerging growth company” as well as adjustments to dollar amounts in Regulation Crowdfunding. Emerging growth companies are generally excluded from certain shareholder voting, disclosure, and other regulatory requirements under the JOBS Act. In addition, the Commission is required every five years to index to inflation the annual gross revenue amount used to determine emerging growth company status. The definition of emerging growth company is being better codified by the new rules in order to reflect this inflation adjustment to annual gross revenue amount.

Specifically, the SEC is adopting amendments to Rule 3-02 of Regulation S-X and Form 20-F to conform them to amended Section 7(a) of the Securities Act. These stipulate that an emerging growth company is permitted to present only two years of audited financial statements in its IPO and, in any Securities Act registration statement other than its IPO, an emerging growth company need not present selected financial data under Item 301 of Regulation S-K for any period prior to the earliest audited period presented in its IPO. Section 102(c) of the JOBS Act provides an emerging growth company is permitted to comply with the MD&A requirements of Item 303(a) of Regulation S-K by providing disclosure covering only the audited financial statements for each period that Section 7(a) of the Securities Act requires to be presented in its IPO registration statement. This is different than the general requirements of Item 303(a), so the SEC is adopting amendments to Instruction 1 of that item to stipulate that an emerging growth company may provide the discussion required by Item 303(a) for its two most recent fiscal years.

Also, the SEC is adjusting Article 2-02 of Regulation S-X, Item 108 of Regulation S-K, and Forms 20-F and 40-F to specify that an auditor of an emerging growth company does not need to attest to, and report on, internal control over financial reporting. Changes are also being made to executive compensation disclosure and shareholder advisory voting through amendments to Item 402(1) of Regulation S-K and other areas. Securities Act Rule 405 and Exchange Act Rule 12b-2 are
being amended to include new definitions of “emerging growth companies” that index the statutory annual gross revenue amount to the Consumer Price Index for all Urban Consumers (CPI-U). Finally, the SEC has amended Rules 100 and 201(t) of Regulation Crowdfunding and Securities Act Form C to adjust the dollar amounts set forth in these rules to inflation.

For complete information on the new rules and changes, see the SEC’s final rule. The new rules will become effective after publication in the Federal Register.

Sources:

Inflation Adjustments and Other Technical Amendments Under Titles I And III of the Jobs Act (Release Nos. 33-10332, 34-80355, www.sec.gov)