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    SEC Proposes Changes to Disclosure Requirements regarding Business, Legal Proceedings and Risk Factors

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    On August 8, 2019, the Securities and Exchange Commission (“SEC”) released a proposal (“Proposing Release”) to modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K.[1]  The SEC’s stated goal is to improve these disclosures for investors and to simplify compliance for registrants.

    Below is a table setting forth the proposed amendments to Regulation S-K and the affected SEC forms:

    Proposed Amendments Affected Forms
    Item 101(a) – Description of Business
    1.       Make it largely principles-based by providing a non-exclusive list of the types of information that a registrant may need to disclose, and by requiring disclosure of a topic only to the extent such information is material to an understanding of the general development of a registrant’s business;

    o   Material bankruptcy, receivership, or any similar proceeding;

    o   The nature and effects of any material reclassification, merger or consolidation of the registrant or any of its significant subsidiaries; and

    o   The acquisition or disposition of any material amount of assets otherwise than in the ordinary course of business

    2.       Include as a listed disclosure topic, to the extent material to an understanding of the registrant’s business, transactions and events that affect or may affect the company’s operations, including material changes to a registrant’s previously disclosed business strategy;

    3.       Eliminate the five-year disclosure timeframe and require registrants to focus on the information material to an understanding of the development of their business, irrespective of a specific timeframe; and

    4.       Permit a registrant, in filings made after a registrant’s initial filing, to provide only an update of the general development of the business that focuses on material developments in the reporting period, and with an active hyperlink to the registrant’s most recent filing that, together with the update, would contain the full discussion of the general development of the registrant’s business

     

    • Forms S-1, S-4, 10, 10-K
    • Schedule 14A
    Item 101(c) – Description of Business
    1.       Clarify and expand its principles-based approach by including disclosure topics drawn from a subset of the topics currently contained in Item 101(c);

    2.       Include, as a disclosure topic, human capital resources, including any human capital measures or objectives that management focuses on in managing the business, to the extent such disclosures would be material to an understanding of the registrant’s business, such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the attraction, development, and retention of personnel; and

    3.       Refocus the regulatory compliance requirement by including material government regulations, not just environmental provisions, as a topic.

     

    • Forms S-1, S-4, 10, 10-K
    • Schedule 14A
                    Item 103 – Legal Proceedings
    1. Expressly state that the required information about material legal proceedings may be provided by including hyperlinks or cross-references to legal proceedings disclosure located elsewhere in the document in an effort to encourage registrants to avoid duplicative disclosure; and
    2. Revise the threshold for disclosure of environmental proceedings to which the government is a party from $100,000 to $300,000 to adjust for inflation.
    • Forms S-1, S-4, S-11, 10, 10-K, 10-Q
    • Schedule 14A
                    Item 105 – Risk Factors
    1. Require summary risk factor disclosure if the risk factor section exceeds 15 pages;
    2. Refine the principles-based approach of that rule by changing the disclosure standard from the “most significant” factors to the “material” factors required to be disclosed; and
    3. Require risk factors to be organized under relevant headings, with any risk factors that may generally apply to an investment in securities disclosed at the end of the risk factor section under a separate caption.
    • Forms S-1, S-3, S-4, F-1, F-3, F-4, SF-1, SF-3
    • Forms 10, 10-K, 10-Q

     

    The comment period will remain open for 60 days following publication of the Proposing Release in the Federal Register. ‎

    [1] Link to the proposing release can be found here:  https://www.sec.gov/rules/proposed/2019/33-10668.pdf

    The post SEC Proposes Changes to Disclosure Requirements regarding Business, Legal Proceedings and Risk Factors appeared first on Capital Markets.

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