Happy 5th Anniversary to the JOBs Act—EGCs Should Prepare for New Disclosure Obligations

The JOBs Act was signed into law on April 5, 2012 and created Emerging Growth Companies, or EGCs, which are eligible to comply with reduced disclosure and other requirements under the federal securities laws.

The definition of an EGC, which in general is a company with annual gross revenues of less than $1 billion during its most recent fiscal year, is expansive.   Over 80% of IPOs since the JOBs Act have been completed by EGCs.  Alas, EGC status does not last forever.

A company loses its status as an EGC upon the earliest to occur of: (i) the end of the fiscal year in which its annual revenues exceed $1 billion, (ii) the date on which the company has, during the previous rolling three‑year period, issued more than $1 billion in non‑convertible debt, (iii) the date on which the company qualified as a large accelerated filer and (iv) the end of the fiscal year in which the fifth anniversary of its IPO occurs.

As the first crop of EGCs celebrates the fifth anniversary of their IPOs in 2017, those companies will lose their status as EGCs (if they have not already) on the last day of their fiscal year—December 31, 2017 for calendar year companies.  Starting in fiscal 2018, those companies will become subject to significant new disclosure obligations.

For planning purposes, one of the most significant potential new requirements is the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act.  A public company should confirm the timing of its loss of EGC status at least annually, or more frequently upon the occurrence of a possible triggering event, and determine what additional requirements will begin to apply.

Public companies that qualify as non‑accelerated filers [and smaller reporting companies], for example, will retain the exemption from the auditor attestation requirements based on that status.  If a public company is an accelerated filer as of the end of the second fiscal quarter in the year in which it loses EGC status, it will be subject to the auditor attestation requirement when it files its Annual Report on Form 10-K for that fiscal year.

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