Securities Regulation and Corporate Governance


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SEC Raises Annual Gross Revenue Amount in the Definition of Emerging Growth Company

On September 9, 2022, the Securities and Exchange Commission (the “SEC”) amended its rules to implement inflation-adjusted amendments to Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 12b-2 of the Securities Exchange Act of 1932, as amended (the “Exchange Act”), and raised the annual gross revenue amount in the definition of “emerging growth company” (“EGC”) from $1,070,000,000 to $1,235,000,000. The final rule (available here) is effective as of September 20, 2022.

Title I of the Jumpstart Our Business Startups (“JOBS”) Act added Securities Act Section 2(a)(19) and Exchange Act Section 3(a)(80) to define the term “emerging growth company.” A qualified EGC may take advantage of certain exemptions from various compliance and reporting requirements that apply to other public companies that are not EGCs. Previously, an EGC was defined as an issuer with total annual gross revenues of less than $1,070,000,000 during its most recently completed fiscal year. Effective as of September 20, 2022, this amount is raised to $1,235,000,000.

Under the JOBS Act, the SEC is required, every five years, to index to inflation the annual gross revenue amount used to determine EGC status to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics (as set forth in more detail in the final rule). The Commission last adopted inflation adjustments in 2017, previously raising the threshold amount from 1,000,000,000 to $1,070,000,000 (previous changes to the EGC definition were discussed here and here).

Additionally, the SEC’s inflation adjustments also affect certain crowdfunding transactions under Section 4(a)(6) and Section 4A of the Securities Act.​ ​

We would like to thank Rodrigo Surcan in our New York office and To Nhu Huynh in our Houston office for their work on this post.

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