Home Accountant Threshold Inflation Adjustments for CGE Definition and Regulatory Crowdfunding Take Effect | Akin Gump Strauss Hauer & Feld LLP

Threshold Inflation Adjustments for CGE Definition and Regulatory Crowdfunding Take Effect | Akin Gump Strauss Hauer & Feld LLP

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Effective September 20, 2022, the Securities and Exchange Commission (SEC) increased the annual gross revenue threshold to qualify for Emerging Growth Company (EGC) status from $1.07 billion to $1.235 billion.

Refreshing EGC rules

An issuer that is a CGE on the first day of a fiscal year continues to be considered a CGE until the earliest of the following dates:

  • The last day of the issuer’s fiscal year in which it totaled annual gross income of $1.235 billion (new limit) or more;
  • The last day of the issuer’s fiscal year following the fifth anniversary the date of the first sale of common stock of the issuer pursuant to an effective registration statement under the Securities Act of 1933, as amended (Securities Act);
  • The date on which this issuer has, during the previous period three-year periodissued more than $1 billion in non-convertible debt; Where
  • The date on which this issuer is deemed to be a big accelerated spinner (i.e. (i) total global public float of $700 million or more, (ii) subject to SEC reporting requirements for at least 12 calendar months, (iii) filed at least one report annual and (iv) ineligible to be a Smallest Reporting Company under the “smallest reporting company” revenue test (i.e. an aggregate global float of $700 million or more and annual revenues greater than $100 million)).

CGEs are allowed:

  • Include less extensive narrative disclosure as required of other SEC filing companies, particularly in the description of executive compensation;
  • Provide Audited Financial Statements for two exercisesunlike other SEC filing companies, which must provide audited financial statements for three years;
  • Not provide a auditor’s certificate of internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act;
  • To report comply with certain changes in accounting standards; and
  • Utilize test-the-waters communications from qualified institutional buyers and accredited institutional investors.

Context of the EGC revenue adjustment

As required by the statutory definition of EGC, the SEC is required every five years to index to inflation the amount of annual gross income used to determine EGC status to reflect changes in the consumer price index for all urban consumers (CPI-U) published by the Bureau of Labor Statistics. This inflation adjustment is designed to maintain the range of filers who qualify as CGEs, preserving the economic effects associated with being able to claim CGE status. The inflation factor of 1.23543 for 2022, which was calculated by dividing the CPI-U for December 2021 (278.802) by the CPI-U for December 2011 (225.672), the calendar year before the definition of EGC is established by the JOBS Act, was multiplied by EGC’s initial gross revenue threshold of $1.0 billion and rounded to the nearest million to arrive at $1.235 billion.

According to the SEC’s analysis, approximately 1,704 (23.7%) of the 7,199 issuers in calendar year 2021 that filed annual reports were CGEs. The SEC estimates that the inflation adjustment of the CGE revenue threshold will increase the total number of CGEs by 51, to about 1,755 filers, of which about 1,436 are expected to be domestic filers, while about 319 are expected to be domestic filers. foreign private issuers. .

Adjustments to crowdfunding thresholds

On September 20, 2022, regulatory crowdfunding inflation adjustments also came into effect.

Rules promulgated under the Securities Act set out the maximum amount an issuer may sell under the crowdfunding exemption in a 12-month period, as well as limits on the dollar amount that may be sold to any investor by an issuer under the crowdfunding exemption. Where the purchaser is not an accredited investor, the aggregate amount of securities sold to such investor for all issuers pursuant to Section 4(a)(6) of the Securities Act during the 12 month period preceding the date of this transaction, including the securities sold to this investor in this transaction, must not exceed:

  • The biggest of $2,500Where 5 percent of the greater of the interests of the investor annual revenue Where net valuewhether the investor’s annual income or net worth is less than $124,000; Where
  • ten percent of the bigger of the investor annual revenue Where net value, not to exceed an amount sold of $124,000if the investor’s annual income and net worth are equal to or greater than $124,000.

For offers which, together with all other amounts sold under Section 4(a)(6) of the Securities Act during the preceding 12 month period, have, in aggregate, the amounts of offers the following targets:

  • $124,000 or lessthe amount of total income, taxable income and total tax, or equivalent items, are approved speak general director of the issuer as being true and complete in all material respects;
  • Between $124,000 and $618,000the issuer’s financial statements are saw again by a independent accountant (if audited financial statements are available, they should be provided instead); and
  • Over $618,000the issuer’s financial statements are checked by a independent accountant; provided howeverthat for issuers that have not yet sold securities under Section 4(a)(6) of the Securities Act, bids that have a target bid amount between $618,000 and $1,235,000the issuer’s financial statements are saw again by a independent accountant (if audited financial statements are available, they should be provided instead).