Stimulating Capital Formation in the United States
Effective July 10, 2017, the SEC is extending rules once only available to emerging growth companies (EGCs) under the 2012 Jumpstart Our Business Startups (JOBS) Act to all companies. The intent of this change is to ease the IPO process and stimulate capital formation in the United States.
Some of the significant changes include:
- All companies may now voluntarily submit confidential, non-public draft registration statements prior to an IPO;
- Financial information may be omitted from the draft registration statement for historical periods currently required by SEC rules, but not reasonably expected to be required with the public filing;
- Financial statements of acquired businesses (Regulation S-X, Rule 3-05) and pro forma financial information (Regulation S-X, Article 11) may be omitted if it is reasonably expected that such financials and pro forma information will not be required with the public filing; and
- The SEC staff will consider a company’s individual facts and circumstances when reviewing requests to omit or substitute certain financials under Regulation S-X, Rule 3-13.
How Does this Help Companies Undertaking an IPO?
Filing initial registration statements for nonpublic review will provided initial filers with more flexibility when planning an IPO. Companies will have the ability to keep such statement nonpublic for an extended period and delay any public review or scrutiny of the business. Finally, companies can evaluate the impact of SEC comments on the overall IPO timeline. For secondary offerings, the confidential process may reduce exposure to potential market fluctuations.
It is important to understand the specific SEC requirements in when taking advantage of these modified rules. Refer to the SEC’s FAQs below. This is one of the first acts of new SEC Chairman, Jay Clayton. We may see other actions by the SEC to further change the manner in which it oversees the US capital markets.