SEC proposes easier reporting, capital raising rules for companies fresh off their IPOs

The Securities and Exchange Commission is proposing rolling back the red tape as part of SEC Chair Paul Atkins’s initiative to “make IPOs great again.”

On Tuesday, the commission put forward two rules to make it less burdensome and costly for companies to go public and raise capital. The rules could be particularly helpful for small and midsize companies.

“When more companies become public, especially earlier in their life cycle, all workers and savers — not just the select few with access to the private markets — can participate in the prosperity of the next generation of American entrepreneurs and business enterprises,” Atkins said in a statement.

“Incentivizing more companies to go and stay public ultimately serves to protect and benefit investors,” he added.

One proposal widens access to shelf offerings, which allow firms to preregister a block of stock without immediately having to sell it. The firm can then sell parts of the block over a period of up to three years. The practice allows the company to optimize timing and eliminates the need to file each time it raises capital.

Currently, newer companies must report financials for 12 months before filing for a shelf offering, and those with smaller floats face tighter restrictions. This proposed change would allow firms to register a shelf offering immediately after becoming public, regardless of size.

It’s the most significant change to the public equity raising process in about two decades, according to an SEC official. The proposal wouldn’t extend to foreign companies, blank check, or other shell companies, they added.

The federal regulator is also calling to simplify filing categories. Currently, companies fall under five groups — large accelerated filers, accelerated filers, non-accelerated filers, smaller reporting companies, and emerging growth companies. The different categories have various deadlines and exemptions, with large accelerated filers having the most stringent requirements.

The proposal reduces existing categories to two — large accelerated filers and non-accelerated filers — and creates a new group named small non-accelerated filers. This applies to companies with less than $35 million in assets, and the group would have extended deadlines to file quarterly and annual reports.

The public float threshold for large accelerated filers would rise from $700 million to $2 billion. Regardless of its size at IPO, a firm has five years before it is categorized as a large accelerated filer.

All the benefits of non-accelerated filers, smaller reporting companies, and emerging growth companies would be combined into the new non-accelerated filers category. This includes less comprehensive executive compensation disclosures, fewer years of financial statements, and no auditing of the company’s internal control over financial reporting.