FAST Act Eases Securities Compliance for Small Businesses

So, what is the FAST Act and how will it help with securities compliance when it comes to business?

On December 4, 2015, President Barak Obama signed the FAST Act (Fixing America’s Surface Transportation) into law. The transportation law is of particular interest to businesses because it also makes several important changes to the JOBS Act and other federal securities laws with the aim of lessening the legal obligations for small businesses.

The key provisions of the FAST Act that amend federal securities law are summarized below:

JOBS Act Changes for Emerging Growth Companies

The FAST Act makes a number of changes that are intended to benefit emerging growth companies (EGCs), which are defined in the Securities Act and the Exchange Act as issuers with “total annual gross revenues” of less than $1 billion during their most recently completed fiscal year. Under existing regulations, issuers were previously required to publicly file a registration statement and all previously submitted drafts no later than 21 days before the date on which the issuer conducts a road show. Section 71001 of the FAST Act shortens that period to 15 days. EGCs with initial public offerings pending before the FAST Act became law or at any time thereafter may take advantage of the provision. If an EGC does not conduct a road show, the non-public drafts must be filed at least 15 days before the effectiveness of the registration statement.

The FAST Act also creates a grace period for EGCs that cease to meet the legal definition. Under amendments to Section 6(e)(1), an issuer that qualifies as an EGC at the time it initiates the registration process, either by submitting a draft registration statement or by filing it publicly, but which subsequently ceases to be an EGC, will continue to be treated as an EGC until the earlier of the date on which the issuer “consummates its initial public offering . . . or the end of the 1-year period beginning on the date the company ceases to be an emerging growth company.”

Finally, the FAST Act amends the JOBS Act to allow EGCs to “omit financial information for historical periods otherwise required by Regulation S-X” if it “reasonably believes [the omitted information] will not be required to be included in the [filing] at the time of the contemplated offering,” so long as the issuer amends the registration statement prior to distributing a preliminary prospectus to include all financial information required at the time of the amendment. While the law states that the provision takes effect 30 days after enactment, the SEC has indicated that will not object if EGCs apply it immediately.

Disclosure Changes for Form 10-K and Regulation S-K

The FAST Act also alters issuers’ disclosure obligations under Form 10-K and Regulation S-K. Most notably, all issuers will be authorized to submit a summary page on Form 10-K, provided that each item on the summary page includes a cross reference to the material in the 10-K. The law advises that a hyperlink would be sufficient. However, the SEC must complete an official rulemaking to implement the changes.

With regard to Regulation S-K, the FAST Act requires the SEC to further streamline the requirements relating to EGCs, accelerated filers, smaller reporting companies and other smaller issuers, as well as “eliminate duplicative, overlapping, outdated or unnecessary provisions of Regulation S-K.” Going forward, the FAST Act also requires the SEC to study how the regulation’s disclosure obligations can be further modernized and simplified.

Smaller Reporting Companies Incorporation by Reference

The FAST Act makes it easier for smaller reporting companies, defined as entities that, as of the last business day of their second fiscal quarter have a public float of less than $75 million, to update their registration statements. Specifically, the SEC is directed to amend Form S-1 to allow smaller reporting companies to incorporate by reference in a registration statement on that form any documents that the company files after the effective date of the registration statement. This provision will also require an SEC rulemaking.

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