What Are the Advantages of an Emerging Growth Company?
Back in 2012, Congress passed the Jumpstart Our Business Startups (JOBS) Act
, easing the restrictions on crowdfunding for certain private companies. The JOBS Act also created a new category of securities issuer, the "emerging growth company" (EGC), that included those with revenues under $1 billion that had either not gone public or just had their IPO.
Given the difficulty in securing funding for many startups and small businesses, any rule that makes it easier to raise capital or go public is some very good news. So, could your company qualify as an EGC? And how could that help your crowdfunding?
Qualifications and Requirements
Adjusted for inflation, the cap on annual revenue for an EGC is now $1,070,000,000 in the prior fiscal year. A business can remain an EGC
until it tops that revenue mark, five years after an IPO, or it qualifies as a large accelerated filer. As noted by the Securities and Exchange Commission, EGCs also have some relaxed reporting requirements and additional access to financing:
Title I provides scaled disclosure provisions for emerging growth companies, including, among other things, two years of audited financial statements in the Securities Act registration statement for an initial public offering of common equity securities, the smaller reporting company version of Item 402 of Regulation S-K, and no requirement for Sarbanes-Oxley Act Section 404(b) auditor attestations of internal control over financial reporting. Title I also enables emerging growth companies to use test-the-waters communications with QIBs and institutional accredited investors and liberalizes the use of research reports on emerging growth companies.
Along with the statutory benefits above, EGCs can carry some financial benefits down the road. Reportedly, about a fifth of EGCs that went public in 2013 began trading above their expected price range, whereas only about 10 percent of standard IPOs outperformed expectations. On top of that, EGCs, in their first three months of post-IPO trading, significantly outgained similarly sized companies before the JOBS Act took effect, as well as bigger companies since.
To find out of the EGC designation is right for your business, contact an experienced small business attorney.
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