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Under the Jumpstart Our Business Startups Act (the JOBS Act) (112 P.L. 106, 126 Stat. 306), which was passed in April 2012, a company qualifies as an emerging growth company (EGC) if at the time of its initial public offering (IPO) total annual gross revenues were less than $1 billion during its most recently completed fiscal year. EGC status affords an issuer the ability to enjoy certain reduced disclosure requirements, including providing fewer years of historical audited financials and reduced compensation disclosure, and reduced corporate governance requirements, particularly around internal controls over financial reporting and say-on-pay advisory votes. A company will retain EGC status until the earliest of the:
Other than excluding certain types of issuers, such as issuers of asset-backed securities and investment companies registered under the Investment Company Act of 1940, there are no restrictions on companies qualifying for EGC status. In addition, companies organized in foreign jurisdictions as well as in the United States can qualify as EGCs.
A securities offering by an EGC is generally governed by the same statutes and regulations as those by non-EGCs, with the exception of the additional provisions of the JOBS Act and the Fixing America’s Surface Transportation Act (the FAST Act) that apply to EGCs. The following key statutes and regulations govern a typical securities offering by an EGC:
The IPO Process for EGCs
EGCs receive key accommodations during the IPO process. The IPO on-ramp contemplated by the JOBS Act relaxed certain regulatory barriers that policy-makers believed were keeping EGCs from accessing the public markets. These accommodations include, among other benefits, confidential submission and review of IPO registration statements, reduced financial statement audit and disclosure requirements, and the ability to engage in oral or written test-the-waters communications with certain types of sophisticated investors before filing a registration statement with the Securities and Exchange Commission (SEC). This response focuses on the IPO process for an EGC, which is the principal point in its lifecycle where an EGC first benefits from its differentiated status as an EGC.
To read the full practice note in Lexis Practice Advisor, follow this link.
Michael Labriola is a partner working in Wilson Sonsini Goodrich & Rosati's Washington, D.C., and New York City offices, where he counsels public and private technology and emerging growth companies through all stages of their growth. His practice focuses on corporate and securities law, including general corporate representation, public offerings, venture capital financings, and mergers and acquisitions. Michael Nordtvedt is a partner at Wilson Sonsini Goodrich & Rosati, focusing on the representation of public and private technology, medical device, and life sciences companies through all stages of their growth, as well as investment banks and venture capital and private equity firms. Michael specializes in corporate and securities law, including general corporate representation, public offerings, private placements, and mergers and acquisitions. Megan Baier is a partner at Wilson Sonsini Goodrich & Rosati, specializing in corporate and securities transactions, with a focus on the life sciences, health care, and technology sectors. She also has considerable experience counseling publicly held companies on general corporate representation, SEC compliance, disclosure matters, and complex securities law issues. Assistance provided by Mark Bass, Keegan Drake, and Michael Moesel, Wilson Sonsini Goodrich & Rosati LLP.
For guidance on the drafting and completion of a preliminary prospectus for an initial public offering (IPO), see
> PREPARING THE REGISTRATION STATEMENT AND PRELIMINARY PROSPECT US FOR AN IPO
RESEARCH PATH: Capital Markets & Corporate Governance > IPOs > Drafting the Registration Statement > Practice Notes > The Registration Statement and SEC Review
For more information on the SEC registration statement review process, see
> UNDERSTANDING THE SEC REVIEW PROCESS
For assistance in drafting risk factors for the registration statement of the IPO of an emerging growth company (EGC), see
> HOW TO DRAFT RISK FACTORS FOR A REGISTRATION STATEMENT
For a detailed explanation about conducting the due diligence review for an IPO, see
> MANAGING THE DUE DILIGENCE PROCESS FOR AN IPO
RESEARCH PATH: Capital Markets & Corporate Governance > IPOs > Conducting an IPO > Practice Notes > Offering Mechanics
For a checklist of the IPO requirements for an EGC, see
> IPO REQUIREMENTS FOR EMERGING GROWTH COMPANIES CHECKLIST
RESEARCH PATH: Capital Markets & Corporate Governance > IPOs > Conducting an IPO > Forms > Checklists