A new law recently signed by President Obama—known as the FAST Act and related mostly to transportation and infrastructure—will help streamline IPOs by emerging growth companies (EGCs). These are companies with annual revenue of less than US$1 billion, and they have conducted the overwhelming majority of U.S. IPOs in the past three years. The FAST Act will also simplify U.S. companies’ disclosure documents and facilitate secondary market trading in privately-placed securities.
IPOs by Emerging Growth Companies
EGCs are permitted to file their IPO registration statements with the SEC confidentially. During the SEC review process, an EGC chooses when to make its IPO public, but must wait at least 21 days after doing so before beginning its road shows. This waiting period is being shortened to 15 days, providing more flexibility, especially in volatile markets, for EGCs to launch their IPOs based on market conditions.
The burden of preparing financial statements will be reduced for some EGCs going public. The general rule is that two years’ of audited financial statements must be included in an SEC registration statement filed by an EGC. For example, if an EGC with an IPO planned for 2016 files its initial registration statement for SEC review before its 2015 financial statements are ready, it would have to include its 2013 and 2014 statements, even if its 2015 statements will be ready in time for the IPO launch. This rule is being changed so that only the 2014 financial statements would have to be included in the initial SEC filing if the company reasonably believes that its 2015 financial statements will be added in time for the IPO launch. The impact will be a welcome reduction of time and expense for some EGCs, although cross-border Canada-U.S. IPOs will not be affected because Canadian rules require three years of financial statements.
Simplifying Disclosure Documents
To make their lengthy, detailed annual reports on Form 10-K more user-friendly, U.S. companies will be able to create a summary page that includes cross-references or links to the full contents of the report. In the same spirit of modernization, and to help reduce the burden of preparing long and complex disclosure documents, the SEC has been tasked with amending its disclosure rules over the next two years to remove redundant, outdated or unnecessary requirements.
Private Resales of Securities
To enhance the secondary trading market for privately placed securities, an informal exemption from SEC registration—the so-called 4(1½) exemption—has been codified. This clarification of the rules governing resales of restricted securities should facilitate more robust trading among accredited investors, particularly in securities of private companies.
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