In an effort to boost more initial public offerings (IPOs) and encourage
startups, the U.S. Securities and Exchange Commission (SEC) recently simplified
rules for confidentially filed IPOs, focusing primarily on the submission
of interim financial statements.
When a company decides to present an IPO, they typically submit their financial
documentation along with their registration.This public record includes
the “prospectus” to be used by the company to solicit investors
by describing the company and IPO terms such as selected financial data.
Selected Financial Data includes key financial information for the past
five years, which indicates significant trends in the company’s
condition. However, if the enterprise is an “emerging growth company,"
usually those with less than $1 billion in revenue, this disclosure requirement
can be restricted to the prior two years.
Under new SEC guidance, companies submitting IPOs confidentially with interim
financial statements for a fiscal year not yet completed can hold off
providing the statements if they are expected to be outdated by the time
the company files publicly. Presumably, this will avoid requiring companies
to submit data that has become obsolete by the time the public has access
to it. Previously, when businesses submitted interim financials when they
filed confidentially, it often resulted in numbers that were no longer
relevant by the time of public filing.
The allure of privately filing provides businesses an opportunity to gather
a measured interest from investors before submitting publicly. The process
was initiated with the Jumpstart Our Business Startups Act, signed into
law in 2012, which permitted companies with less than $1 billion in revenue
to submit registration statements for initial non-public review. That
process is now available for all IPOs and most offerings made by a company
within a year of entering the SEC’s public reporting system.
SEC Chairman Jay Clayton, who took the post after being nominated by President
Trump, stated, "We are striving for efficiency in our processes to
encourage more companies to consider going public, which can result in
more choices for investors, job creation, and a stronger U.S. economy."
In recent years, companies have trended toward staying private longer,
obtaining financial support from backers in private funding circles rather
than participating in public markets. Clayton has focused on making U.S.
markets more attractive, stating that he would like to make it more appealing
for companies to sell public shares rather than rely on private investments,
while at the same time promising to be vigilant in protecting investors
throughout the process.
“We applaud the SEC for today announcing it will allow all newly
public companies to file registration statements confidentially,”
Adena Friedman, the chief executive officer of Nasdaq Inc., stated. “We
have long supported such an action and believe it is one step forward
in making the public markets more attractive, which will foster economic