Legal Definitions - smaller reporting company

A smaller reporting company is a category of publicly traded company recognized by the Securities and Exchange Commission (SEC) that qualifies for a less extensive set of disclosure requirements compared to larger public companies. This classification aims to reduce the compliance burden and costs for smaller businesses, making it more feasible for them to operate in the public markets.

To qualify as a smaller reporting company, a business must meet specific financial thresholds and not be an investment company or a subsidiary of a larger company that doesn't qualify. Generally, a company can be considered a smaller reporting company if it has:

• A public float (the market value of its shares held by the public) of less than $250 million; or
• Annual revenues of less than $100 million, and either no public float or a public float of less than $700 million.

Once a company meets these criteria, it benefits from relaxed rules regarding the information it must provide to the public and the SEC. For instance, it may need to disclose less detailed executive compensation information, report on fewer executive officers, and provide financial statements covering two years instead of three. This reduction in reporting complexity can significantly lower legal, accounting, and administrative expenses.

• Example 1: A Newly Public Software Startup
  

  InnovateCode Inc., a software development company, recently went public to raise capital. Its shares are now traded on a stock exchange, and its public float is valued at $180 million. InnovateCode's annual revenues are currently $45 million. Since its public float is well below $250 million, InnovateCode Inc. qualifies as a smaller reporting company.

  This classification allows InnovateCode to provide less extensive financial statements and executive compensation details in its SEC filings. This saves the company considerable time and money on legal and accounting fees, enabling it to allocate more resources towards product development and growth rather than complex regulatory compliance.

• Example 2: An Established Regional Manufacturer with Modest Revenue
  

  Mid-Atlantic Spindles Corp. has been a publicly traded company for over a decade, producing specialized industrial parts. Its public float has grown to $550 million, which is above the initial $250 million threshold. However, its annual revenues have consistently remained around $75 million. Because its annual revenues are less than $100 million AND its public float is less than $700 million, Mid-Atlantic Spindles Corp. still qualifies as a smaller reporting company.

  Even though it's an established company with a moderately sized public float, its relatively modest revenue allows it to maintain its smaller reporting company status. This means it can continue to benefit from streamlined reporting, such as providing two years of comparative financial data instead of three, which helps manage ongoing compliance costs.

• Example 3: A Pre-Revenue Biotechnology Company
  

  BioGenius Therapeutics, a biotechnology firm, recently completed its initial public offering (IPO) to fund clinical trials for a new drug. As is common for early-stage biotech companies, BioGenius currently has no significant annual revenues (less than $100 million) and its public float is $90 million. BioGenius Therapeutics qualifies as a smaller reporting company.

  For BioGenius, this status is crucial. It allows the company to focus its limited resources on scientific research and development rather than on the more burdensome and costly reporting requirements that larger, revenue-generating public companies face. They can provide a more concise management discussion and analysis, reducing the administrative overhead during their critical drug development phase.