Regulation S-B - Explained
What is Regulation S-B?
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What is Regulation S-B?
Regulation S-B is a securities law that provides the outline of the disclosure requirements for smaller business issuers prescribed under the Securities Act of 1933 and Securities Exchange Act of 1934. However, in 2008 the Securities and Exchange Commission discarded Form SB 1 in order to strengthen the investors protections new rules were established.
According to the SEC, a small business issuer is a company with revenues of less than $25,000,000 and whose public float does not exceed $25,000,000. Public float is the cumulative market value of the outstanding voting and non-voting common equity held by non-affiliates. If there is no market for a company's securities, the book value may substitute the market value.
In the new rule implemented in 2008, SEC established a category of reporting companies that are called "smaller reporting companies". This new category effectively combines the smaller business issuers and non-accelerated filters. A company is qualified as a smaller reporting company if it has less than $75 million in public equity float. If a company is unable to calculate its public float and its annual revenue is less than $50 million in the last fiscal year, that company is considered a smaller reporting company.
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What is SEC Form SB-1?
The Securities Act of 1933 aims to ensure that investors receive all significant information regarding the publicly offered securities. The regulations under the Securities Act of 1933 and Securities Exchange Act of 1934 require all the companies registered on the SEC to disclose the essential information in the prescribed forms. This helps in combating fraudulent activities in the sale of the offered securities and helps the investors take informed decision.
Before the amendment in the regulation, the smaller business issuers were required to submit Form SB-1 to disclose their information. It was a simplified version requiring less information about the business. In this form, summary data was not required. It also didn't require full detailed financial information. This form was designed to make the procedure hassle-free for the small businesses offering securities in public.
However, in 2008 the regulatory authority mandated a stricter rule to be imposed on the small businesses. The amendment was made to prevent the rising securities frauds and protect the interest of the investors. This new rule demands more comprehensive information about the issuing company upon its registration of the SEC.
According to this rule all the companies that fall in the category of "smaller reporting companies" also need to file Form S-1 for the issuance of securities. While calculating the revenues for this purpose, the issuing companies needs to include all revenues on a consolidated basis. If this consolidated revenue was less $25 million only then it would qualify as the small business issuer. The investment companies, including business development companies and asset-backed issuers, were however not eligible to be considered as a "small business issuer".
The new rule also continued to exclude these companies from eligibility for scaled treatment. The S-B regulation did not require the disclosure of the names and addresses of management personnel those are beneficial owners of the company's securities.
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