Good news for small companies considering an IPO. On December 4, 2015, President Obama signed the Fixing America’s Surface Transportation Act (the FAST Act). Aside from directing transportation spending, this act includes provisions relevant to startup companies and companies seeking to pursue the IPO path. Below, I’ve outlined the major ways in which this act affects so-called “emerging growth companies,” or EGCs – defined as companies with revenues of less than $1 billion in their most recent fiscal year – by potentially reducing the costs related to initial filings and allowing them to keep their information confidential longer.
- Longer confidentiality period. Under the JOBS Act, which created the EGC category, a company that meets that definition needs to publicly file a registration statement for its IPO no fewer than 21 days before the start of its roadshow. Under the FAST Act, this time period has been reduced to 15 calendar days.
- Maintaining EGC status longer. In some cases, companies that have started the IPO process as EGCs have lost that status – for example, if the SEC review process continued past the end of the fiscal year in which the issuer crossed over the $1 billion revenue threshold. Under the FAST Act, such a company would remain an EGC through the earlier of either its IPO date or the 1-year anniversary of it otherwise losing EGC status. By retaining this status, the company is entitled to reduced regulatory and reporting requirements under the Securities Act and the Exchange Act.
- Reduced disclosure requirements. The FAST Act permits EGCs to omit historical financial information from their initial confidential submission or public filing of the IPO registration statement if this historical financial information would not be required in a registration statement (S-1 or F-1) at the time of the road show.For example, EGCs are currently required to include 2 years of audited financial statements in their public IPO filings. For some issuers, the timing of the IPO process may be such that the fiscal year would complete while the review process is still going on, and therefore the company would need to add audited financial statements for that most recent year. Under the FAST act, in a situation like that, financial statements for the earlier year would not be required in the registration statement. Instead of going through the expense and effort to audit and include financial statements from that prior year, the issuer could simply omit that year from the initial and subsequent filings.
These provisions do not free small companies of the onerous task of preparing and filing their IPO-related financial statements but they do provide some relief, including a longer confidentiality period.