Reporting Company - Explained
What is a Reporting Company?
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Table of ContentsWhat is a Reporting Company?What are the Requirements for a Reporting Company?Academic Research on Reporting Company
What is a Reporting Company?
A company that is required to file reports periodically with the Securities and Exchange Commission under section 12, 13 or 15(d) of the Securities Exchange Act of 1934 is called a Reporting Company. A Reporting Company can be a company which is listed on a Public Exchange or it can be a company which is not listed on an exchange but traded publicly. If a company's total asset amounts to more $10 million and it has a class of equity securities, that is held of record either by 2,000 or more persons or by 500 or more non-accredited investors then it is obligated to file a registration statement under Section 12 of the Securities Exchange Act of 1934. The companies with no effective registration statement for a public offering become a reporting company in this process.
What are the Requirements for a Reporting Company?
The Reporting Companies need to file an annual report on Form 10-K and quarterly reports on Form 10-Q on an ongoing basis. The companies need to disclose certain important information about their business in these forms. The required information is almost the same as the information required in a registration statement for a public company. The CEO and CFO of the filing company must certify the financial and certain other information that is provided in the reports. If a company meets the criteria of being a "smaller reporting company" or an "emerging growth company", it may rely on scaled disclosure requirements for these reports. The companies are also required to file Current reports on Form 8-K to report certain specifies events. Generally, they are required to report the event within four business days following its occurrence. These events may include completion of an acquisition or disposition of assets, unregistered sales of equity securities, entry into and termination of a material definitive agreement and others. Along with these, there are certain other requirements like proxy report filing, and shareholder and affiliate reporting. A company is required to file reports with the SEC in the following circumstances:
- A company has to register its securities with the SEC under section 12(b) in order to trade those securities on a US exchange. Usually, the companies also list their securities for trading on a national securities exchange such as the New York Stock Exchange or Nasdaq stock market while it goes public. A company needs to fulfill the reporting requirements for its registered securities.
- Companies issuing equity or debt securities offered to the public but not listed on any US exchange need to file their reports under Section 15(d) of the Securities Exchange Act of 1934.
- A company is required to fulfill the filing requirements when it reaches the size threshold.
The companies issuing securities are categorized into four groups:
- Non-reporting issuers: The companies that are not required to file reports with the SEC are called non-reporting issuers or non-reporting company. Even if they decide to report voluntarily, they are considered as a non-reporting issuer. The US private companies, Non-US private companies, and foreign companies that are public in their own country but are not obligated to report under the Securities Exchange Act of 1934 fall under this category.
- Unseasoned issuers: The companies that do to meet the eligibility criteria of filing Form S-3 for a primary offering of securities but are required to file the reports under the Security Exchange Act 1934 is called the Unseasoned issuers.
- Seasoned issuers: A seasoned issuer is a company that meets the eligibility criteria to use Form S-3 for registering primary offerings on its behalf, on behalf of its majority-owned subsidiary or on behalf of its parent. Companies that issue asset-backed securities on Form S-3 are seasoned issuers.
- Well-Known Seasoned Issuers: To be considered as a Well-Known Seasoned Issuer (WKSI) a company needs to meet all of the following criteria at some point during a period of 60 days preceding the date the company satisfies its obligation to update its shelf registration statement.
- The company meets the eligibility criteria to use Form S-3 or Form F-3 to register its primary offerings.
- The company is not an ineligible issuer.
- As of a date within this 60-day period, it had a worldwide market float of its outstanding voting and non-voting common equity held by non-affiliates worth at least $700 million or it has issued at least $1 billion aggregated amount of non-convertible securities other than common equity in the last 3 years.
Reporting requirements are in place to ensure market transparency and investor protection. The investors and the market are informed on a regular basis so that the investors can make an informed decision. The reports filed with the Securities and Exchange Commission is publicly available on the SEC EDGAR website.
Academic Research on Reporting Company
- Detecting and Preventing Financial Statement Fraud: The Roles of the Reporting Company and the Independent Auditor, Raab, M. S. (1987). Yale Law & Policy Review, 5(2), 514-535. The bankruptcies or near failure of some organizations like Penn Square Bank, E.S.M. Government Securities, and Continental Illinois Bank raised some serious questions about the proper roles of the reporting entity and the independent auditors in detecting and preventing financial statement fraud. During 1985 to 1986, 16 hearings were conducted by the House Energy and Commerce Subcommittee on Oversight and Investigations in order to find out the reasons behind these incidents of audit failures. In this context, the article attempts to analyze the roles of the reporting company and the independent auditors in detecting and preventing these frauds.
- Assessing quality of financial reporting, Jonas, G. J., & Blanchet, J. (2000). Accounting horizons, 14(3), 353-363. This paper assesses the quality of the financial reporting of Greek municipalities in terms of accounting principles compliance. Two alternative compliance indices were developed based on the data collected from the auditor's reports to measure the level of compliance. The study suggests there is a scope of improvement in the quality of the information. The result also shows that the quality of the accounting information significantly depends on the variables that are related to the size of the auditor and the municipality, wealth and experience in accrual accounting. The paper evaluates whether the desirable quality of accounting information was achieved by introducing accrual accounting in the public sector.
- Smaller Reporting Company Regulatory Relief and Simplification, Forms, T. I. A. (2008). This article describes the rule amendments in disclosure and reporting requirements made by the Securities and Exchange Commission in 2008. This amendment combined for most purposes the "small business issuer" and "non-accelerated filer" categories of small business into a single category called "smaller reporting companies."