[Congressional Record Volume 169, Number 97 (Monday, June 5, 2023)]
[House]
[Pages H2723-H2725]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL STATEMENT REPORTING REQUIREMENTS FOR EMERGING GROWTH
COMPANIES
Mrs. WAGNER. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 2608) to amend the Federal securities laws to specify the
periods for which financial statements are required to be provided by
an emerging growth company, and for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 2608
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. FINANCIAL STATEMENT REPORTING REQUIREMENTS FOR
EMERGING GROWTH COMPANIES.
(a) Securities Act of 1933.--Section 7(a)(2) of the
Securities Act of 1933 (15 U.S.C. 77g(a)(2)) is amended--
(1) in subparagraph (A), by striking ``and'' at the end;
(2) by redesignating subparagraph (B) as subparagraph (C);
and
(3) by inserting after subparagraph (A) the following:
``(B) need not present acquired company financial
statements or information otherwise required under section
210.3-05 or section 210.8-04 of title 17, Code of Federal
Regulations, or any successor thereto, for any period prior
to the earliest audited period of the emerging growth company
presented in connection with its initial public offering and,
thereafter, in no event shall an issuer that was an emerging
growth company but is no longer an emerging growth company be
required to present financial statements of the issuer (or
acquired company financial statements or information
otherwise required under section 210.3-05 or section 210.8-04
of title 17, Code of Federal Regulations, or any successor
thereto) for any period prior to the earliest audited period
of the emerging growth company presented in connection with
its initial public offering; and''.
(b) Securities Exchange Act of 1934.--Section 12(b)(1)(K)
of the Securities Exchange Act of 1934 (15 U.S.C.
78l(b)(1)(K)) is amended by striking ``firm;'' and inserting
``firm, provided that the application of an emerging growth
company need not present acquired company financial
statements or information otherwise required under section
210.3-05 or section 210.8-04 of title 17, Code of Federal
Regulations, or any successor thereto, for any period prior
to the earliest audited period of the emerging growth company
presented in connection with its application and, thereafter,
in no event shall an issuer that was an emerging growth
company but is no longer an emerging growth company be
required to present financial statements of the issuer (or
acquired company financial statements or information
otherwise required under section 210.3-05 or section 210.8-04
of title 17, Code of Federal Regulations, or any successor
thereto) for any period prior to the earliest audited period
of the emerging growth company presented in connection with
any application under subsection (b) of this section;''.
[[Page H2724]]
The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from
Missouri (Mrs. Wagner) and the gentleman from California (Mr. Sherman)
each will control 20 minutes.
The Chair recognizes the gentlewoman from Missouri.
{time} 1645
General Leave
Mrs. WAGNER. Mr. Speaker, I ask unanimous consent that all Members
may have 5 legislative days in which to revise and extend their remarks
and include extraneous material on the bill.
The SPEAKER pro tempore. Is there objection to the request of the
gentlewoman from Missouri?
There was no objection.
Mrs. WAGNER. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of H.R. 2608, a bill to specify the
periods for which financial statements are required by an emerging
growth company.
I thank my colleague, our esteemed chairman of the Financial Services
Committee, Mr. McHenry, for his leadership on this important piece of
bipartisan legislation which will ensure the continued success of the
IPO on-ramp enacted in the bipartisan JOBS Act of 2012.
To address the steady decline of small company IPOs, title I of the
JOBS Act of 2012 established a new class of public companies, or
issuers, known as emerging growth companies.
These companies are given an on-ramp of up to 5 years to comply with
certain regulatory requirements prior to, throughout, and immediately
after the company's IPO.
Under the JOBS Act, one particularly helpful accommodation provided
to EGCs is the requirement to provide 2 years of audited financial
statements instead of 3 years in its IPO registration statement.
Under certain circumstances, however, an EGC, or a company that went
public as an EGC, must provide financial statements for earlier
periods. This has occurred occasionally, for example, in the case of
acquired company financial statements and for follow-on offerings
involving an emerging growth company that lost its EGC status during
IPO registration.
H.R. 2608 resolves this misinterpretation by establishing that an
emerging growth company, as well as any issuer that went public issuing
EGC disclosure obligations, only needs to provide 2 years of audited
financial statements.
Mr. Speaker, by ensuring that EGCs can consistently rely on the JOBS
Act's scaled disclosure obligations by eliminating this irregularity,
H.R. 2608 will enhance the utility and the benefits of EGC
accommodations.
For this reason, I urge my colleagues to support H.R. 2608, and I
reserve the balance of my time.
Mr. SHERMAN. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of H.R. 2608, sponsored by the
gentleman from North Carolina.
I want to put this bill in context. The first two bills we considered
in this session dealt with private offerings, where there is very
limited investor protection and where there are requirements as to who
is allowed to invest.
We are now focusing on public companies where there is a lot of
investor protection and where anyone can invest and anyone who buys can
then freely sell it to anyone else.
Just as by way of illustration, we are talking about, in this bill,
whether there will be 2 or 3 years of audited financial statements for
certain public companies. That differs from the private offerings that
we considered in the first two bills. Private offerings are not
required to have any audited financial statements.
A special accommodation has been made to emerging growth companies,
known as EGCs, who are obligated to provide 2 years of audited
financial statements when they first provide an initial public
offering.
Other companies, on the other hand, are required to provide 3 years
of audited financial statements when they go public. In some
situations, however, an EGC must provide 3 years of audited financials,
including cases where they acquire another company.
This bill would recognize that whatever standards we have when the
company first goes public, those standards being for 2 years of audited
financials, I think are logically applied in certain other
circumstances. One of those is where the company goes to the public a
second time for a follow-on offering, and the other is when the company
uses its stock to acquire a company.
We have a rule that, for the most important gatekeeping requirement,
says 2 years of audited financials. This bill would provide that same
standard for emerging growth companies in these two other types of
situations. This will harmonize the EGC framework, making sure that
these smaller reporting companies have a scaled-down obligation but
still do provide 2 years of audited financials.
Mr. Speaker, I urge my colleagues to vote ``yes'' on this important
bill, and I reserve the balance of my time.
Mrs. WAGNER. Mr. Speaker, I yield such time as he may consume to the
gentleman from North Carolina (Mr. McHenry), the chairman of the full
Financial Services Committee.
Mr. McHENRY. Mr. Speaker, I thank the chair of the Subcommittee on
Capital Markets, Mrs. Wagner, for leading our committee Republicans'
capital formation agenda on the Financial Services Committee. She has
done a fantastic job.
I thank the Members of the minority party for joining with us in
passing some of these important bills.
By the end of today, we will haved passed 11 of those bills through
the House of Representatives in the last 2 weeks. I thank the Members
for their work there.
Mr. Speaker, I rise in support of H.R. 2608. This bill clarifies the
periods for which financial statements are required to be provided by
an emerging growth company.
Now, an emerging growth company is an important provision of the JOBS
Act of 2012. These are smaller companies that are growing rapidly, and
the idea here is we want them to be able to access the public markets
more quickly.
Now, let me stop here. It is a real pleasure to spend time on the
House floor getting back to the policy that I am most steeped in and
most interested in and, quite frankly, thrilled that I am not talking
about the debt ceiling. Thank you for your indulgence there.
This important provision of the JOBS Act, called the emerging growth
company piece of the JOBS Act, has this designation of an IPO on-ramp.
The idea here is these are smaller revenue companies, and in their
growth, we want them to be able to get to the public markets as quickly
as they can.
Emerging growth companies are given a 5-year ramping period in the
public markets to comply with a lot of regulatory requirements that
public companies are obligated to comply with.
The goal here was to have an accommodation to have more companies go
public here in the United States, and it has worked. This was title I
of the JOBS Act. The success of this provision was as a direct result
of it being self-executing. We wrote the law, and instantly, that day,
people started using the statute.
Within the first 2 years of enactment of the JOBS Act, emerging
growth companies resulted in 85 percent of all U.S. IPOs. Additionally,
this specific accommodation for 2 years of audited financial statements
was utilized by 65 percent of emerging growth companies within the
first 2 years of the JOBS Act.
Despite the success of the JOBS Act IPO on-ramp, there are
clarifications Congress should make to maximize the utility of these
provisions. For example, there are instances where an emerging growth
company, or a company that qualifies as such during its initial public
offering, must provide financial statements for periods earlier than 2
years.
The first instance is when an emerging growth company acquires a
significant business. The emerging growth company must present 3 years
of financial statements, even though the post-merger company also
qualifies as an emerging growth company. This is kind of a wonky
failure of the statute.
The second instance is when a company qualifies as an emerging growth
company during its IPO but later tries to conduct a follow-on offering
to raise capital after it loses its emerging growth company status. In
such instances, the company would also be required to provide 3 years
of financial statements.
[[Page H2725]]
This bill updates emerging growth company financial reporting
accommodations to clarify that an emerging growth company, as well as
any company that qualifies as such, when it is conducting its initial
public offering, does not need to provide financial statements for a
period earlier than 2 years, which is required during the emerging
growth company's initial public offering. That is a lot of words.
This update will increase efficiency by ensuring that these companies
will be able to consistently rely on the JOBS Act's scaled financial
reporting requirement accommodation. It will eliminate an aberrational
result that actually has been shown to require burdensome and
unnecessary financial reporting obligations.
This bill clearly establishes that an emerging growth company will
not be required to provide audited financial statements for any period
earlier than 2 years, including in those instances I mentioned that
were not previously addressed in the original JOBS Act.
Mr. Speaker, after 11 years of the JOBS Act, this particular section
of the JOBS Act has shown that it has been wonderfully successful. We
have more IPOs using the statute than any other change in security laws
we have made as a Congress in recent memory. That is a great success.
We want to update that existing statute, and we are doing so in a
bipartisan way. That should be a welcome sign for Congress, that we can
do complicated things in a bipartisan way. That is what we are here to
do.
Mr. Speaker, I urge my colleagues to vote ``yes.''
Mr. SHERMAN. Mr. Speaker, I yield myself such time as I may consume
for closing.
This bill passed our committee by a 41-to-0 vote. In passing H.R.
2608, Congress is making sure that smaller companies have scaled-down
disclosure obligations in all instances rather than just the initial
public offering. We apply the same standard to acquisitions and follow-
on offerings. This is a commonsense reform. It reduces the burden on
small companies and still provides investors with 2 years of audited
financial statements.
Mr. Speaker, I urge my colleagues to support this bill, and I yield
back the balance of my time.
Mrs. WAGNER. Mr. Speaker, I strongly urge my colleagues to support
H.R. 2608, and I yield back the balance of my time.
Ms. JACKSON LEE. Mr. Speaker, I rise today to speak on H.R. 2608, a
bill to amend the Federal securities laws to specify the periods for
which financial statements are required to be provided by an emerging
growth company, and for other purposes.
H.R. 2608 would change the reporting period for financial statements
submitted to the Securities and Exchange Commission (SEC) by an
emerging growth company (EGC) or former EGC when it acquires another
company.
The bill would ensure that EGCs and former EGCs submit financial
statements for their target companies that cover a reporting period
that does not exceed the earliest audited period for the EGC or former
EGC, as presented in connection with an initial public offering.
Under current law, when reporting to the SEC, acquiring companies
(including EGCs) must submit up to two years of financial statements
for their target companies.
H.R. 2608 is a measure that will limit the financial information an
emerging growth company must submit to the Securities and Exchange
Commission.
Specifically, an emerging growth company is not required to present a
financial statement for any period prior to the earliest audited period
of the emerging growth company in connection with its initial public
offering, such as a statement for an acquired company.
This bill is being amended to clarify and specify language in the
original text.
The SPEAKER pro tempore. The question is on the motion offered by the
gentlewoman from Missouri (Mrs. Wagner) that the House suspend the
rules and pass the bill, H.R. 2608, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________