Practical tip: An emerging growth company should continually evaluate its status and related implications on its SEC filings


Download: An emerging growth company should continually evaluate its status and related implications on its SEC filings

This Practical tip focuses on the timing of the loss of "emerging growth company" (EGC) status and the implication of losing that status on SEC filings.

Title I of the JOBS Act granted special accommodations  to a newly designated class of companies called emerging growth companies (EGCs). An EGC is  an issuer that (1) had total annual gross revenues of less than $1 billion during its most recently completed fiscal year, (2) did not sell common equity securities using an effective Securities Act registration statement on or before December 8, 2011 and (3) has not triggered any of the disqualifying criteria described below.

The accommodations available to EGCs include (1) availability of a confidential filing process until 21 days prior to the issuer’s roadshow, (2) the option to present two years of audited financial statements in its equity initial public offering materials instead of the three years typically required for companies that are not smaller reporting companies, (3) the option to omit certain selected financial data preceding the earliest audited year presented in its initial registration statement, (4) deferral of any requirement to obtain an audit of the company’s internal control over financial reporting, and (5) the option to adopt new or revised accounting standards on the same timeline as private companies, if the standard is applicable to both public and private entities. To find more information on these and other accommodations available to EGCs, refer to Dataline 2012-03.

This Practical tip focuses on the timing of the loss of EGC status.

An issuer that is an EGC as of the first day of its fiscal year will continue to be an EGC until the earliest of:

  1. the last day of the fiscal year during which it had total annual gross revenues of $1 billion or more;
  2. the date on which it has issued more than $1 billion in non-convertible debt securities during the previous rolling three-year period;
  3. the date on which it becomes a large accelerated filer (which generally occurs on the last day of the fiscal year in which its public float is at least $700 million as of the last business day of its second fiscal quarter – see Exchange Act Rule 12b-2); or
  4. the last day of the fiscal year following the fifth anniversary of the first sale of the issuer’s common equity securities in an offering registered under the Securities Act.

Once EGC status is lost, it generally cannot be regained.

Transition considerations

EGCs should carefully consider these four disqualifying provisions because current interpretive guidance does not provide any transition period for companies that exit EGC status. In other words, an EGC status change will be applied from the date on which the change occurred.

An issuer that exits EGC status should ensure that its annual report for the year of the change in EGC status conforms to the requirements for a non-EGC public company (taking into account other applicable designations such as accelerated filer status, newly public company status or smaller reporting company status). However, the SEC will not object if an issuer that has lost its EGC status does not present, in subsequently filed registration statements and periodic reports, selected financial data or a ratio of earnings to fixed charges for periods prior to the earliest audited period presented in its initial Securities Act or Exchange Act registration statement. For instance, a company that was not previously required to obtain an audit of its internal control over financial reporting because it was an EGC may be required to obtain one for the year of change in EGC status (unless it is exempt under another status, for instance, if it is a non-accelerated filer).

Practical examples

  • A calendar year-end company whose total annual gross revenues equal or exceed $1 billion for the year ending December 31, 2013 would exit EGC status on December 31, 2013 and would prepare its 2013 annual report as a non-EGC.
  • A calendar year-end company whose market capitalization equaled or exceeded $700 million as of June 28, 2013 (the last business day of its most recently completed second fiscal quarter) (and met the other conditions to qualify as a large accelerated filer) would also no longer be considered an EGC for purposes of its 2013 annual report. 
  • For a calendar-year EGC that completed its initial public offering of common equity securities on June 15, 2012, the fifth anniversary will be on June 15, 2017. Absent the presence of an earlier disqualifying event, it will exit EGC status on December 31, 2017 and, accordingly, may not take advantage of the EGC accommodations in its 2017 annual report.
  • A calendar year-end EGC issued $400 million of non-convertible debt securities on April 30, 2013, which caused the amount of non-convertible debt securities issued during the immediately preceding rolling three-year period (May 1, 2010 to April 30, 2013) to exceed $1 billion. The issuer will exit EGC status on April 30, 2013.

The SEC staff provided guidance on this topic in FAQs 3, 17, 40, and 50 of JOBS Act FAQs: Generally Applicable Questions on Title I of the JOBS Act and in Financial Reporting Manual (FRM) 10110.4. Because there are no transition accommodations, EGCs should regularly track matters that may cause them to exit EGC status. Loss of EGC status could result in significantly increased financial reporting and compliance requirements.


PwC clients that have questions about this Practical tip should contact their engagement partner. Engagement teams that have questions should contact Mila Petrova (1-973-236-5601) or Anil Persad (1-973-236-5009) in the National Professional Services Group.

Authored by:

Mila Petrova
Phone: 1-973-236-5601

Anil Persad
Senior Manager
Phone: 1-973-236-5009