Shelf Improvement: SEC Proposes Sweeping Changes to Ease Public Company Reporting and Capital Raising

Summary

On May 19, the Securities and Exchange Commission (SEC) proposed transformative rule changes representing a comprehensive overhaul of the public company reporting and capital formation framework. Led by SEC Chairman Paul Atkins, these proposals are part of a broader SEC effort to reduce reporting costs, encourage more companies to become and remain public, and make it easier for companies to raise capital in the public markets.

The first proposal (Release No. 33-11418) aims to make the registered offering process more efficient and flexible for issuers of all sizes. It would, among other things, expand access to shelf offerings on Form S-3, extend benefits currently reserved for “well-known seasoned issuers” (WKSIs) to a broader set of issuers, expand incorporation by reference into Form S-1, and preempt state securities law requirements for all registered offerings, irrespective of whether the issuer is listed on a national securities exchange.

The second proposal (Release No. 33-11419) would extend to a larger set of issuers the disclosure accommodations currently only available to smaller reporting companies and emerging growth companies. It would collapse the current filer status framework into two primary categories –  large accelerated filers (LAFs) and non-accelerated filers (NAFs) – and raise the public float threshold for LAF status from $700 million to $2 billion.

Key Proposed Changes

Registered Offering Reform (Release No. 33-11418)

• Expanded Form S-3 Eligibility; Bye-Bye Baby Shelf: In an effort to allow a greater number of issuers the flexibility of accessing the capital markets by using a short-form registration statement on Form S-3, the proposal would eliminate the eligibility requirement that issuers must have been subject to reporting under the Securities Exchange Act of 1934 (Exchange Act) for at least 12 months and remove all transaction requirements, including the $75 million public float threshold to register an unlimited amount of securities. Under the proposal, the one-third of public float limitation on primary offerings by issuers with a public float of less than $75 million (the “baby shelf” rules) would be eliminated. Form S-3 would still require issuers to be current and timely in their Exchange Act reporting (subject to certain limited exceptions). A new proposed instruction would prohibit certain “ineligible issuers” (which include blank check companies, shell companies, and penny stock issuers) from using the form for a period of three years. However, an issuer would not be ineligible to use Form S-3 solely because it or its predecessor was formally a SPAC. Newly public companies (whether by IPO, direct listing, or de-SPAC) would be able to utilize the shelf registration process right out of the gate.
• New Issuer Categories: The WKSI framework would be replaced with two new categories of domestic issuers: eligible listed issuers (ELIs), which are issuers eligible for Form S-3 with exchange-listed common equity, and seasoned eligible listed issuers (SELIs), which are ELIs with at least 12 months of Exchange Act reporting. Neither category would require the current $700 million public float or $1 billion registered debt threshold to be met. SELIs would qualify for automatic shelf registration, and ELIs would receive benefits such as pay-as-you-go fees, post-effective amendments for additional securities classes, and prefiling communications, among others. The WKSI definition would be retained only for foreign private issuers (FPIs).
• Form S-1 Incorporation by Reference: Backward and forward incorporation by reference on Form S-1 would be expanded to all eligible issuers, removing current limitations that restrict backward incorporation to issuers that have filed an annual report and forward incorporation to smaller reporting companies. In addition, under the proposed rule, an issuer would not be ineligible to incorporate by reference on Form S-1 solely because it was a SPAC in the past three years.
• State Law Preemption: The proposal would preempt state securities law registration and qualification requirements for all registered offerings by defining “qualified purchaser” under the Securities Act of 1933, as amended (Securities Act). Currently, such preemption applies only to exchange-listed securities. States would continue to have authority to investigate and bring fraud actions and to require notice filings for fees.
• Elimination of Delaying Amendments: Under the proposal, Rule 473 would be revised so that the effectiveness of a registration statement would be deemed delayed unless the issuer includes a legend stating that the registration statement will become effective under Section 8(a) of the Securities Act, eliminating the need for traditional delaying amendments.
• Changes to Staleness Deadline: Smaller reporting companies (SRCs), regardless of when a registration statement is filed or accelerated, would have up to 90 days after their fiscal year‑end to include audited annual financial statements in registration statements, rather than the current 45‑day blackout trigger. Non‑SRC reporting issuers that are current in their Exchange Act reports would be required to include audited annual financial statements in registration statements no later than their Form 10‑K due date (based on filer status), rather than the current 45‑day blackout trigger. Audited statements, if available earlier, must be included when available.
  
  

Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies (Release No. 33-11419)

• Simplified Filer Status Framework: The proposal would collapse the current five-category filer status framework, which consists of LAFs, accelerated filers, NAFs, SRCs, and emerging growth companies (EGCs), into two primary categories: LAFs and NAFs. The accelerated filer and SRC categories would be eliminated. Because EGC status was created by the JOBS Act and is thus a statutory status, the SEC is not proposing to eliminate the EGC filer status. Under the proposal, NAFs would be permitted to apply the disclosure requirements that currently apply to EGCs, which would make reliance on EGC status unnecessary in most circumstances. As a result, many more issuers would be able to take advantage of streamlined disclosure requirements.
• Raised LAF Threshold: The public float threshold for LAF status would increase from $700 million to $2 billion. In addition, to minimize the impact of volatility in share price on a single day, public float would be calculated using the average stock price over the past 10 trading days of the second fiscal quarter (under the current rules, public float is determined using the closing price (or average of bid/ask prices) on the last business day of the issuer’s second fiscal quarter). In order to reduce frequent filer status changes, transitioning into or out of LAF status would require meeting (or not meeting) the threshold for two consecutive fiscal years, and companies would need at least 60 consecutive months of Exchange Act reporting before becoming an LAF.
• Extended NAF Accommodations: Under the proposal, every issuer that is not an LAF would be an NAF. Importantly, this would include all issuers for five years from their IPO, regardless of revenue or public float. All non-LAF companies would receive the scaled disclosure accommodations currently available to SRCs and EGCs, including scaled executive compensation disclosure (no pay-versus-performance); no say-on-pay votes; fewer years of financial statements; exemption from the Internal Control Over Financial Reporting (ICFR) auditor attestation; and deferred adoption of new accounting standards for up to five years.
• Small Non-Accelerated Filers (SNFs): A new subcategory would be created for companies with total assets of $35 million or less for the two most recent years, providing an additional 30 days to file Form 10-K (extending the deadline from 90 to 120 days) and five additional days to file Form 10-Q (extending the deadline from 45 to 50 days).
  
  

In a May 19 statement, Chairman Atkins framed the filer status proposal as part of a broader effort to make public company status more attractive to a wider range of issuers. Atkins noted that “the opportunity to become a public company should not be reserved for ‘unicorns’” and stated that the proposal would make public company status more attractive by “expanding existing benefits to more companies, simplifying the analysis required for a company to avail itself of those benefits, and enhancing certainty of how long a company receives them.” We predict that, if enacted in their currently proposed form, these rule changes will greatly simplify public company reporting and reduce unnecessary compliance costs and expenses, allowing public companies, particularly small and midsize ones, to devote resources instead to growing their businesses.

Practical Considerations

Companies should begin to model their anticipated filer status under the proposed rules and consider what operational adjustments they would need to make. While the final rules remain subject to comment and may change, the following are some practical considerations to keep in mind as the rules are finalized:

• Capital market offerings – The proposed rules represent substantial reforms that would significantly broaden and simplify access to the capital markets, lowering eligibility barriers, shortening time to market, and reducing offering frictions for a wider range of issuers.
  • The elimination of the $75 million public float threshold (and the corresponding baby-shelf limitations) and 12-month Exchange Act reporting requirement for Form S-3 would allow smaller issuers to conduct unlimited shelf offerings and newly public issuers to conduct shelf offerings almost immediately after becoming Exchange Act reporting companies (subject to customary IPO lock-up limitations). Issuers currently ineligible for Form S-3 should assess whether they would become eligible under the proposed framework.
  • Many issuers that do not qualify as WKSIs would qualify as SELIs under the proposed rules and therefore be eligible to file an automatically effective shelf registration statement, increasing offering flexibility and potentially quicker access to the capital markets.
  • The expanded ability to incorporate by reference on Form S-1 will ease the burden of ongoing offerings, including resale registration statements, which currently require the issuer to file frequent post-effectiveness amendments and prospectus supplements.
  • As a result of the proposed changes to the staleness deadlines, issuers (including those with losses) would no longer be forced to accelerate audits or delay offerings. The staleness timing would track each issuer’s Form 10‑K due date, eliminating the gap between 45 days after fiscal year‑end and the Form 10‑K due date during which many issuers cannot have a registration statement declared effective. Note, however, that under PCAOB AS 6101, an auditor may provide negative assurance on interim financial information only if it has performed an interim review of a period that ended less than 135 days (i.e., 134 days or fewer) before the comfort letter cutoff date. As a result, unless PCAOB rules change, offerings that fall outside that 134‑day window will still require an interim review of a more recent period to obtain negative assurance, even if the financial statements are not “stale” under the proposed amended Regulation S‑X timing.
• Newly public companies – Every issuer completing an IPO would automatically become a reporting company with NAF status and would retain that status, including the associated accommodations discussed above, for a minimum of five years, regardless of revenue or public float, due to the 60 consecutive months of Exchange Act reporting required to qualify as an LAF. The SEC has framed this five-year on-ramp as a strategy to reduce the initial cost and complexity of being a public company.
• Current NAFs, SRCs, or EGCs – Issuers that currently hold NAF, SRC, or EGC status would be consolidated into a single NAF designation. While these issuers would continue to benefit from existing accommodations for NAFs, under the proposed rule, current non-EGC NAFs would be exempt from holding say-on-pay votes and would be able to provide scaled executive compensation disclosures.
• Current accelerated filers and LAFs – Issuers whose public float falls between $700 million and $2 billion, as well as those that have been subject to Exchange Act reporting for fewer than five years, would be reclassified from their current filer status to NAF status. These issuers would be entitled to provide scaled disclosure, forgo the ICFR auditor attestation, and otherwise benefit from the NAF accommodations outlined above.
• Timing of determination – Existing issuers must, as of the fiscal year‑end before the final rules take effect, evaluate whether they are LAFs or NAFs based on public float and, if applicable, total assets for that year and the prior year.
• Boards and corporate governance – Boards of directors should consider how expanded access to shelf offerings may affect an issuer’s capital allocation strategy and the board’s role in authorizing securities issuances. Issuers may wish to revisit delegations of authority for shelf takedowns and ATM sales, update procedures for monitoring forward-incorporated Exchange Act reports, and ensure that insider trading policies account for the increased frequency with which issuers may access the capital markets.
• Interaction between the two proposals and the semiannual reporting proposal – The SEC has also recently proposed a rule that would allow companies to opt in to semiannual reporting. All three proposals are designed to work alongside each other. If all three proposals are adopted, the combined effect could allow an issuer to simultaneously benefit from NAF scaled disclosure accommodations, shelf offering access on Form S-3, and the option to file semiannual reports instead of quarterly reports. Issuers, underwriters, attorneys, accountants, and their advisors should evaluate the cumulative impact of these proposals on the informational environment and potential capital-raising efforts.
• America First – Notably, the proposed rule changes relating to the expansion of Form S-3 eligibility and Form S-1 incorporation by reference would not apply to the registration statement forms (Form F-3 and Form F-1) utilized by foreign private issuers (FPIs). In addition, the SEC is proposing to keep in place the existing reporting regime for FPIs and not extend the accommodations being proposed for domestic issuers.
  
  

Looking Ahead

The SEC is accepting public comments on both proposed rules for 60 days after publication, so final rules remain several months away from adoption. Although the final rules may differ from the proposals, the SEC has signaled that these proposals are part of a comprehensive effort to review and reshape the current rules governing public companies, their ongoing reporting obligations, and their ability to raise capital in the public markets.

For any questions or guidance regarding the SEC’s proposed registered offering reforms, filer status simplification, or the potential impact of those reforms on your company’s capital-raising capabilities and reporting obligations, please reach out to a member of our Capital Markets & Securities team. We are available to provide practical, tailored advice to help issuers, investment banks, investors, and other market participants navigate the evolving regulatory landscape.