An emerging growth company (EGC) is a company whose gross revenues for its latest completed fiscal year were under $1.235 billion, a status that lets a newly public company phase into some of the SEC's more demanding reporting requirements rather than meeting all of them at once.
The definition sits in Exchange Act Rule 12b-2. Unlike filer status, which is built on public float, EGC status turns on revenue and on how long ago the company first sold common equity in a registered offering.
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Once a company is an EGC on the first day of a fiscal year, it keeps the status until the earliest of four events: the end of the fiscal year in which its gross revenues reach $1.235 billion or more; the end of the fiscal year after the fifth anniversary of its first sale of common equity under an effective Securities Act registration statement; the date on which it has issued more than $1 billion of non-convertible debt over the prior three years; or the date it becomes a large accelerated filer. The five-year clock is why EGC status is mostly seen in IPO prospectuses and a company's first few annual reports.
The accommodations show up in the filings themselves. The 10-K cover page has an EGC check box and a second box asking whether the company has opted out of the extended transition period for new or revised accounting standards. An EGC that leaves the box unchecked can use the longer transition period, so a new FASB standard may reach its financial statements later than it reaches those of other public companies. EGCs are also excused from the auditor's attestation on internal control over financial reporting that accelerated and large accelerated filers otherwise must include.
For investors, the check box is a cue to read carefully. An EGC's financial statements may not reflect a new accounting standard that its larger peers have already adopted, and its internal controls may not have been tested by an outside auditor, which matters when comparing its reported figures against more established companies.
A: At most until the last day of the fiscal year following the fifth anniversary of the company's first registered sale of common equity. It ends sooner if revenue reaches $1.235 billion, if the company issues more than $1 billion of non-convertible debt in three years, or if it becomes a large accelerated filer.
A: Total annual gross revenues must be below $1.235 billion for the most recently completed fiscal year. The status ends at the close of the fiscal year in which revenue reaches that level.
A: Yes. The two tests are independent — EGC status is based on revenue and time since the first registered equity sale, while smaller reporting company status is based on public float and revenue — and the 10-K cover page has a separate check box for each.
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