JOBS Act Background
The Jumpstart Our Business Startups Act (JOBS Act) established a significant alternative process for submitting a registration statement relating to a company’s initial public offering (IPO). Companies that qualify as an emerging growth company (EGC) can submit draft registration statements on a nonpublic basis for review by the Division of Corporation Finance of the Securities and Exchange Commission (SEC). This allows an EGC to begin the expensive and time-consuming process of registering an initial public offering with the SEC without exposing itself to public scrutiny after the initial filing of the registration statement and while the SEC is reviewing and commenting upon the filing. Although the SEC expects that these submissions, which are voluntary, to be substantially complete when initially submitted, they are not considered “filed” with the SEC, and are not required to be signed by any of the company’s officers or directors. A signed audit report is required, but consents of auditors and other experts are not. The company must publicly file its initial confidentially submitted registration statement and all amendments to the registration statement not later than 15 days before the date on which the company begins its IPO road show.
This process has been available only to companies that qualified as an EGC. Companies generally lose EGC status upon the earliest of (1) the last day of the fiscal year in which the company’s total annual gross revenues are $1 billion or more, (2) the last day of the company’s fiscal year following the fifth anniversary of the date of the first sale of its common equity securities pursuant to an effective registration statement under the Securities Act of 1933 (Securities Act), (3) the date on which the company has issued more than $1 billion in non-convertible debt securities during the prior three year period or (4) the date on which the company becomes a “large accelerated filer” under SEC rules.
SEC rules also permit EGCs to take advantage of a variety of other provisions that can reduce the burdens of becoming a public reporting company, such as reduced disclosure requirements.
SEC Expands Nonpublic IPO and Other Filings
The SEC issued a press release on June 29, 2017 stating that the Division of Corporation of Finance would begin accepting voluntary draft registration statements relating to IPOs and certain other registration statements for nonpublic review by all companies, not just EGCs, beginning July 10, 2017. This process will be similar to the nonpublic process that is currently available to EGCs under the JOBS Act, and is intended to reduce exposure to market fluctuations during the review process and increase flexibility in planning an IPO.
The SEC subsequently published a series of 18 FAQs on the process of voluntarily submitting draft registration statements. These FAQs largely address procedural questions such as EDGAR procedures, confidential treatment requests and signature and filing fee mechanics. Some of the FAQs cover more substantive matters, and these are included in the discussion below.
The significant elements of the new SEC process as described in the SEC’s June 29, 2017 announcement include the following:
- Effective Date. Companies may submit draft registration statements to the SEC for nonpublic review beginning on July 10, 2017. This process is voluntary.
- Not Limited to EGCs. Companies do not need to qualify as an EGC to take advantage of this process.
- Initial Securities Act and Exchange Act Registrations. This process is available for drafts of initial Securities Act registrations, as well as initial registration statements for listing of a class of securities on a national securities exchange under Section 12(b) of the Securities Exchange Act of 1934 (Exchange Act). The company must confirm in the cover letter that accompanies its nonpublic draft submission that the company will publicly file the registration statement and all nonpublic draft submissions at least 15 days prior to any road show, or at least 15 days prior to the requested effective date of the registration statement if there is no road show. In the case of registration statements under Section 12(b) of the Exchange Act, the company must publicly file the registration statement and nonpublic draft submissions at least 15 days prior to the anticipated effective date of the registration statement for its listing on a national securities exchange. The first publicly filed registration statement must be complete, including all signatures, signed audit reports, consents and exhibits, and the company must pay any required filing fees at the time of filing.
- Follow-On Public Offerings Within One Year of IPO. Until the end of the 12th month following the effective date of an initial registration statement under the Securities Act or under Section 12(b) of the Exchange Act, the SEC will accept initial drafts of registration statements for nonpublic review. The company must confirm in its cover letter that it will publicly file the registration statement and nonpublic draft submissions at a time when they will be publicly available on the SEC’s EDGAR system at least 48 hours before any requested effective time and date of the registration statement. Significantly, the nonpublic submission process for these non-initial registration statements is limited to the company’s initial submission of the registration statement, and does not extend to amendments. Companies must file any amendments to these registration statements publicly, rather than with a revised nonpublic draft submission. The filing requirements summarized above apply to the first public filing of the registration statement.
- New Process Affects Only Timing, Not Disclosure. This process affects only the manner and timing of public filing of registration statements; it does not affect disclosure or other requirements.
- No Impact on EGC Process. This process does not change the existing confidential review process and other special provisions that are available to EGCs.
- Content of Draft Registration Statements. The SEC announcement states that although companies should take all steps to ensure that a draft registration statement is substantially complete when submitted, the staff will not delay processing if the company reasonably believes that any omitted financial information will not be required at the time the registration statement is publicly filed. This relief is intended to be similar to existing relief that allows an EGC to omit financial information that “relates to a historical period that the issuer reasonably believes will not be required to be included…at the time of the contemplated offering” under Section 71003 of the Fixing America’s Surface Transportation (FAST) Act. The staff will also consider a company’s specific facts and circumstances in connection with any request under Rule 3-13 of Regulation S-X to omit one or more of the financial statements that would otherwise be required in a registration statement. This relief applies only to draft registration statements; the relief provided by Section 71003 of the FAST Act is available only to EGCs.
- Communications Issues. Companies should consult with counsel carefully regarding communications before, during and following the confidential submission of a draft registration statement and the subsequent public filing of a registration statement. The SEC FAQ states that a company that is not an EGC cannot use test-the-waters communications with QIBs and other accredited institutional investors under Section 5(d) of the Securities Act. Further, the safe harbor under Securities Act Rule 134 does not apply until a company files a registration statement that satisfies the requirements of Rule 134. In addition, although a company that submits a draft registration statement for nonpublic review may make public communications about the offering in reliance on Securities Act Rule 135, the company’s public statement may affect whether the SEC can withhold the draft registration statement in response to a request under the Freedom of Information Act.
- EDGAR System Transition. A company that does not have EDGAR access codes will need to file a Form ID to obtain the codes from the SEC. Pending further updates to Form ID, a new issuer should indicate on the Form ID that it intends to use the codes to submit a draft registration statement pursuant to Section 106 of the JOBS Act, even if it is not an EGC. This will help preserve the nonpublic status of the company’s draft submissions until the company files them publicly. Companies that intend to use this process should review the SEC FAQs for information on these and other filing mechanics.
- Foreign Private Issuers and MJDS Filers. The SEC will permit Foreign Private Issuers (FPI) and Canadian companies filing under the Multi-Jurisdictional Disclosure System to choose to proceed either under the new process or under those available to an EGC, if the company qualifies as an EGC. Alternatively, an FPI may follow the guidance in the SEC’s May 30, 2012 policy statement on nonpublic submissions by FPIs.