Emerging Growth Company Status and the Going Public Process
Going public offers many benefits to companies seeking to grow their business, including:
- Enhanced ability to raise capital,
- Liquidity for founders and shareholders,
- Increased visibility
- Improved financial position,
- Enhanced credibility,
- Enhanced ability to attract and retain employees and
- The ability to offer valuable incentives to employees and consultants.
An Emerging Growth Company is defined as an issuer with total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year. Status as an Emerging Growth Company offers many benefits to issuers going public. Most companies quoted on the OTC Markets OTC Link qualify as Emerging Growth Companies.
Once a company qualifies as an Emerging Growth Company, it maintains its Emerging Growth Company status until the earliest of:
- The last day of the fiscal year in which the issuer had total annual gross revenues of at least $1.07 billion;
- The last day of the fiscal year following the fifth-anniversary date of the issuer’s initial public offering of equity securities;
- The date in which the issuer has, during the previous three-year period, issued more than $1 billion in nonconvertible debt; or
- The date in which the issuer is considered to be a “large accelerated filer” under the Securities Exchange Act of 1934 (meaning that the issuer has been reporting for at least one year, has filed at least one annual report, and the value of its common equity held by nonaffiliates is at least US $700 million, calculated on the last business day of its most recently completed fiscal quarter).
Emerging Growth Company Status During the Going Public Process
An issuer that qualified as an Emerging Growth Company at the time it confidentially submitted its draft Form S-1 or Form F-1 registration statement (or, alternatively, publicly filed its registration statement) but loses its status during the going public process can retain its Emerging Growth Company status through the earlier of:
- the date of the consummation of its IPO, or
- the end of a one-year period beginning on the date the issuer lost its Emerging Growth Company status.
Emerging Growth Company status provides many benefits to issuers meeting its status:
- Reduced financial information in SEC filings
- An Emerging Growth Company is permitted to present only two years of audited financial statements in its Form S-1 or Form F-1 registration statement instead of three years required for non-Emerging Growth Companies.
- An Emerging Growth Company also may limit the number of years of selected financial data to two years in its Form S-1 or Form F-1 Registration Statement.
- An Emerging Growth Company can delay compliance with auditor attestation on internal controls required by Section 404 of Sarbanes-Oxley.
- An Emerging Growth Company can comply with new or revised accounting standards.
- Emerging Growth companies also may provide reduced executive compensation disclosure.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.