Should Your Company Go Public?

The U.S. Securities and Exchange Commission (SEC) recently proposed two landmark rulemakings – Registered Offering Reform and Reporting Framework Simplification – that, if adopted, fundamentally would reshape the regulatory landscape for public companies. Taken together, the proposals would make the initial public offering (IPO) process less daunting, follow-on capital raising more efficient and flexible, and ongoing public-company compliance significantly less burdensome and expensive. SEC Chair Paul Atkins described the proposals as "the foundation for my agenda to Make IPOs Great Again," emphasizing that "the opportunity to become a public company should not be reserved for 'unicorns.'"

This Holland & Knight alert highlights how the proposed rules could affect the exit strategies of private companies – whether venture-backed, private equity-backed or founder-led.

A Simpler Path to Going Public: Pre-IPO Benefits

Reduced Disclosure Burden in the IPO Registration Statement

Currently, the scope of disclosure required in an IPO registration statement varies depending on whether a company qualifies as an emerging growth company (EGC). The 2012 Jumpstart Our Business Startups (JOBS) Act afforded EGCs a number of accommodations, including 1) the ability to provide only two years (instead of three) of audited financial statements in the IPO registration statement, 2) reduced executive compensation disclosure, 3) an exemption from the internal control over financial reporting (ICFR) auditor attestation requirement and 4) the ability to submit draft registration statements for confidential SEC review.

The proposed Registered Offering Reform rules (Offering Reform) would extend many of these accommodations to all companies engaging in an IPO, as well as all non-accelerated filers (NAFs) – a new reporting category that would encompass approximately 80 percent of all public reporting companies and all newly public companies. As a result, companies that do not qualify as EGCs (for example, because they have more than $1.235 billion in total annual gross revenues) would enjoy the same benefits upon going public that EGCs currently receive.¹ This is a meaningful development: The "IPO disclosure package" will be lighter for a significantly larger universe of companies, reducing the upfront cost and management time required to prepare for an IPO. In particular, scaling back executive compensation disclosure and eliminating the requirement for auditor attestation over ICFR for a minimum of five years will reduce IPO and public company costs significantly.

Preemption of State "Blue Sky" Requirements

A significant structural change for some IPO-bound companies is the proposed full preemption of state securities law registration and qualification requirements for all registered offerings. Currently, federal law preempts state-level securities registration requirements only for offerings of securities listed, or approved for listing, on a national securities exchange, leaving registered offerings of unlisted securities to an unwieldy, time-consuming and expensive process of compliance with state-by-state "blue sky" registration and qualification requirements. The proposed amendments would define "qualified purchaser" under Section 18(b)(3) of the Securities Act to include any purchaser in a registered offering, effectively preempting state registration and qualification requirements for all registered offerings.

For private companies considering an IPO of unlisted securities, such as nontraded real estate investment trusts (REITS) and certain business development companies, this change would eliminate a layer of cost and complexity from the offering process by removing the need to engage blue sky counsel and navigate state-by-state compliance.

Raising Capital After the IPO: Enhanced Offering Flexibility

For many private companies, the IPO is just the beginning of the capital-raising cycle. A critical consideration in any IPO analysis is how easily the company will be able to return to the capital markets for follow-on equity offerings after the IPO. Currently, that process can be slow and cumbersome for newly public and smaller companies. The proposed reforms would change this dramatically.

A Modernized Form S-1

Registration statements for companies conducting an IPO or that have not been public for at least a year are filed on Form S-1, the SEC's "long-form" registration form. Currently, Form S-1 permits only those issuers that have already filed an annual report to incorporate by reference reports previously filed with the SEC (i.e., backwards incorporation), and only smaller reporting companies (SRCs) are allowed to incorporate subsequently filed reports automatically by reference (i.e., forward incorporation). The proposed amendments would eliminate both restrictions, allowing all issuers meeting the Form S-1 requirements to backward and forward incorporate by reference.

Although these changes primarily benefit companies that are already public that file subsequent registration statements on Form S-1, these changes also signal the SEC's broader intent to reduce complexity in the registration process. In addition, these changes will make it easier and less expensive to maintain effective registration statements with respect to warrants or other derivative securities issued in an offering, including an IPO.

Immediate Access to Form S-3 and Shelf Registration

Form S-3 is the workhorse registration form for follow-on offerings by public companies. It permits shelf registration and delayed offering, which allows public companies to pre-register securities and then sell them quickly when market conditions are favorable. Shelf registrations enable rapid and opportunistic access to the capital markets for both equity and debt securities through a variety of methods such as firmly underwritten offerings, at-the-market (ATM) offerings that allow companies to sell shares gradually at prevailing market prices and continuing note offering programs for the sale of debt securities. Currently, a primary offering on Form S-3 requires at least 12 months of SEC reporting history and $75 million in unaffiliated public float (for unlimited access). The proposed amendments would eliminate both requirements, allowing companies to file shelf registration statements on Form S-3 immediately after becoming reporting companies.

For a private company considering an IPO, this is transformative. Rather than facing a 12-month waiting period and $75 million public float hurdle before gaining access to the most efficient form of public capital raising, any public company would be eligible to use Form S-3 on day one after an IPO and could incorporate disclosure by reference from its S-1 IPO registration statement. This allows newly public companies to access the capital markets quickly and opportunistically. The SEC's economic analysis indicates that prior expansions of Form S-3 eligibility resulted in meaningful reductions in offering discounts for smaller issuers, a transition away from private investments in public equity (PIPEs) and a net increase in equity issued.

New Issuer Categories: ELIs and SELIs Replace WKSIs

Currently, the most flexible and effective registration and communication benefits – such as automatic shelf registration, use of free writing prospectuses (FWPs) and prefiling communications – are reserved for well-known seasoned issuers (WKSIs), which are companies that have been reporting for at least 12 months and have a $700 million unaffiliated public equity float or $1 billion of registered debt. The proposed amendments would replace the WKSI framework for domestic issuers with two new categories:

• Eligible Listed Issuers (ELIs). Form S-3 eligible issuers (meaning those current and timely in their SEC reporting obligations) with at least one class of common equity listed on a national securities exchange, with no public float or registered debt minimum. ELIs would gain access to FWPs, pay-as-you-go registration fees and flexible pre- and post-filing communication tools.
• Seasoned Eligible Listed Issuers (SELIs). ELIs with at least 12 months of Exchange Act reporting. SELIs would be eligible for automatic shelf registration, which would allow newly filed shelf registrations to become effective immediately without SEC review, providing the most streamlined method of accessing the public capital markets.

For a company going public on a national exchange, the practical impact is significant: The company would qualify as an ELI immediately upon completing its IPO and as a SELI after 12 months, gaining automatic shelf registration without SEC staff review.

Expanded Capital Markets Access

The bottom line impact of these changes would be a dramatic increase in efficiency and cost-effective ongoing access to both equity and debt capital markets, including through rapidly effected follow-on underwritten offerings, ATM offerings, ongoing debt offerings, equity backed credit lines and other capital-raising mechanisms. The expanded availability of Form S-3 (and after only 12 months of public reporting, automatic effectiveness) also will facilitate financing for acquisitions, as well as resales of founder and other insider equity, improving both primary and secondary liquidity.

Life as a Public Company: Reduced Ongoing Compliance Burdens

Perhaps the most significant concern for private companies evaluating an IPO is the ongoing cost and burden of public-company reporting and governance compliance. The Reporting Framework Simplification proposal addresses this concern head-on by fundamentally restructuring the filer status framework and extending scaled or reduced disclosure accommodations to the vast majority of public companies.

A Simplified 2-Tier Filer Framework

The current five overlapping filer categories, each carrying distinct obligations and accommodations that can be difficult to navigate, would be replaced with a streamlined two-tier structure:

• Large Accelerated Filers (LAFs). $2 billion unaffiliated public float (up from $700 million), measured over the last 10 trading days of the second fiscal quarter, met for two consecutive years (providing greater predictability and preventing a single-year swing from triggering a status change), plus 60 months of Exchange Act reporting
• Non-Accelerated Filers (NAFs). All filers that do not qualify as LAFs; within the NAF category would be a subcategory of Small Non-Accelerated Filers (SNFs), consisting of NAFs with total assets of $35 million or less for the two most recent years, with eligibility for extended filing deadlines

A 5-Year IPO On-Ramp

The 60-month seasoning requirement creates, in effect, a minimum five-year post-IPO on-ramp during which all newly public companies would be classified as NAFs – regardless of size. The SEC notes that, absent this on-ramp, approximately 1.5 percent more of current registrants would be classified as LAFs immediately upon going public. For a private company evaluating an IPO, this on-ramp is significant. Even a company that achieves a $2 billion-plus public float at IPO would not be subject to full LAF-level requirements, including ICFR auditor attestation, for at least five years. This substantially reduces what the SEC's release describes as the "post-IPO compliance shock" that historically has made companies reluctant to pursue a public listing due to the cost and risk of compliance.

Exemption from ICFR Auditor Attestation

Only LAFs would be required to obtain an ICFR auditor attestation regarding ICFR pursuant to Section 404(b) of the Sarbanes-Oxley Act; all NAFs, which would include newly public companies for at least the first five years following an IPO, would be exempt. The SEC acknowledged that Public Company Accounting Oversight Board standards already require auditors to test relevant controls during a financial statement audit and communicate material weaknesses to the audit committee, even absent a separate ICFR opinion. The elimination of the auditor attestation requirement for NAFs is expected to produce meaningful cost savings, one of the most frequently cited compliance expenses for public companies.

Scaled Disclosure Accommodations

All NAFs would receive the scaled disclosure accommodations currently available only to SRCs and EGCs. Key accommodations include, among others, compensation disclosure for three (instead of five) named executive officers, with two years (instead of three) of summary compensation table data. In addition, NAFs would not be required to provide a compensation discussion and analysis (CD&A) with respect to executive compensation, pay ratio or pay versus performance disclosure and would be exempt from say-on-pay and related advisory votes. Further benefits would include reduced requirements to provide in annual and quarterly reports audited financial statements and management's discussion and analysis covering two years (instead of three), no mandated risk factor disclosure, and no stock performance graph or market risk disclosures. NAFs have 90 days to file Form 10-K (compared to 60 days for LAFs) and 45 days to file Form 10-Q (compared to 40 days for LAFs). SNFs would receive extended filing deadlines: 120 days (up from as little as 60) for Form 10-K and 50 days (up from as little as 40) for Form 10-Q.

Putting It All Together: The New IPO Calculus

The following table summarizes how the proposed rules would change the regulatory landscape for a company seeking a liquidity event through an IPO of equity securities listed on a national securities exchange:

Looking Ahead

There is no question that the proposed reforms would meaningfully increase the attractiveness of public ownership as an alternative form of exit strategy or source of liquidity. Public capital markets have been long recognized as an excellent source of efficiently priced and accessible capital but with a high and ongoing cost. These reforms – combined with other recently previewed rulemakings aiming to ease the reporting burden, including the recent proposals on optional semiannual interim reporting, eliminating climate disclosure and revamping the executive compensation disclosure framework – should greatly reduce the cost and management burdens of becoming and staying public and also improve the public company value proposition through simplifying and accelerating the ability to return to the market to raise capital. Simplified and reduced ongoing reporting requirements are added incentives for the IPO path.

To be balanced, several factors warrant careful consideration. Some NAFs may elect to continue providing full LAF-level disclosures because of investor expectations or legal risk considerations. In connection with underwritten offerings, underwriters may require more than the minimum required disclosure. In effect, the new rules would create a lower minimum, but it is conceivable that the investors and other stakeholders will push NAFs to disclose more.

The proposals also do not address several other considerations for going public, including the upfront costs of the IPO process, growth of private capital markets and securities class action litigation risk. SEC Chair Atkins has signaled, however, that these proposals are "just the beginning."

Comments on the Registered Offering Reform proposal are due by July 27, 2026, and comments on the Reporting Framework Simplification proposal are due by July 20, 2026. If adopted before year end, these rules could take effect as early as 2027.

For private companies that have deferred or deprioritized an IPO due to concerns about the regulatory burden of public company status, these proposals represent a potential inflection point. For more information on these proposals or to discuss how they may affect your company's capital-raising strategy, please contact the authors or another member of Holland & Knight's Public Companies and Securities Team.

Notes

¹ Although the Offering Reform does not formally extend the ability to submit draft registration statements to the SEC for confidential review to all types of issuers, the SEC previously adopted accommodations to extend this privilege to all issuers.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.