Small Reporting Companies vs. Emerging Growth Companies: A Guide for U.S.-Listed Businesses

• Company formation / Compliances
• ||
• March 26, 2025

Listed companies in the U.S. may find Securities and Exchange Commission (SEC) regulations complex, the stress of filing requirements, and all those disclosure obligations overwhelming. For this, the SEC has classified two statuses that significantly impact compliance, financial reporting, and investor relations: Small Reporting Companies (SRCs) and Emerging Growth Companies (EGCs).

Are you also searching your head in the confusion between EGC and SRC on the web? Stop the confusion: Understand the essential differences between ESG and CSR in this insightful article. While both classifications provide reduced regulatory burdens, they cater to businesses in different stages of growth. Let us break down the key distinctions, benefits, and compliance obligations between the both to determine which classification best fits your business needs.

What Are Small Reporting Companies (SRCs)?

A Small Reporting Company (SRC) refers to all public companies that meet specific revenue and Public Float threshold limits established by the SEC. These companies benefit from scaled disclosures and requirements (such as Section 404(b) of the Sarbanes-Oxley Act), making it easier and more cost-effective to comply with regulatory filings.

To qualify as SRC, a company must meet either of the following criteria:

• Public float (the total value of shares held by public investors) of less than $250 million as of the last business day of its second fiscal quarter                                                                              Or
• If the company has annual revenues of less than $100 million and:
  • No Public float or
  • Public float of less than $700 million

For example, XYZ Inc. has annual revenues of $80 million and a public float of $600 million. Since its revenue is below $100 million and its public float is under $700 million, XYZ Inc. qualifies as an SRC.

Key Benefits of SRC Status

SRCs are allowed to file fewer years of audited financial statements and provide scaled executive compensation disclosures, lowering compliance costs and making reporting more manageable.

1. One of the major benefits companies receive is Exemption from SOX 404(b) of the Sarbanes-Oxley Act. Unlike larger companies, SRCs are not required to obtain an external auditor’s opinion on their internal control over financial reporting, which significantly reduces regulatory burdens and associated expenses.
2. Another major advantage is Management’s Discussion & Analysis (MD&A)-SRCs can provide a less detailed MD&A section in their SEC filings, streamlining financial reporting while keeping investors informed about relevant information.
3. Companies get flexibility in capital raising by certain relaxed fundraising requirements, making it easier to attract investors and access capital without being overburdened by compliance and regulations.
4. After all the above benefits, SRCs can spend less on legal, accounting, and compliance costs, allowing them to allocate more resources to business growth and innovation.
5. SRCs have the advantage of gradually adjusting to reporting requirements as they grow rather than facing an abrupt transition to full SEC compliance.

What Are Emerging Growth Companies (EGCs)?

An Emerging Growth Company is a public company that qualifies for reduced SEC reporting requirements for up to five fiscal years after it completes an Initial Public Offering (IPO).

To qualify as an EGC, a company must:

• Have annual gross revenues of less than $1.235 billion in its most recent fiscal year
• Not have issued more than $1 billion in non-convertible debt securities over the past three -years.
• Is within five years of its IPO date (i.e., an EGC status generally lasts for a maximum of five years)
• It does not qualify as a Large Accelerated Filer

Key Benefits of EGC Status

1. One major benefit of EGCs is that they are permitted to provide only two years of mandatory audited financial statements instead of three years as per the SEC, which definitely eases the burden of financial disclosure and makes the transition to public markets smoother.
2. EGCs are exempt from SOX 404(b), which means they are not required to obtain an external auditor’s report on internal control over financial reporting.
3. EGCs can submit their IPO registration statement confidentially, which allows them to test investors’ interests and make adjustments before going public, ultimately minimizing risk.
4. EGCs have relaxed compliance obligations, which include lower costs for public listing and lower legal compliance.
5. EGC status allows start-ups and mid-sized firms to scale at their own pace, without the financial and regulatory pressures of larger Public Companies, ensuring a smoother transition into public markets.

Comparing SRCs and EGCs: Key Differences

When Should a Company Choose SRC or EGC Status?

Points to remember

The important point to remember here is that- Companies that surpass the SRC or EGC threshold must transition to full SEC compliance. This involves- Increasing financial disclosures, including Expanded MD&A and executive compensation reports, SOX 404(b) compliance along with auditor attestation, and adoption of new accounting standards without delay.

Companies also must regularly monitor financial metrics in order to determine if they still qualify under their pre-existing classification. Failure to comply with SEC disclosure requirements may lead to penalties, investor scrutiny, and reputational risks.

Conclusion

For U.S. listed companies, choosing between Small Reporting Company (SRC) and Emerging Growth Company (EGC) status impacts compliance, financial reporting, and investor relations. While both classifications offer reduced SEC requirements, the right choice depends on growth objectives, funding needs, and long-term business strategy.

SRCs benefit from ongoing compliance relief, while EGCs are designed to support companies during the IPO transition. Monitoring financial thresholds ensures businesses maintain the right classification while avoiding compliance pitfalls.

At Mercurius, we understand the complexities that U.S.-listed companies face when navigating SEC compliance, financial reporting, and regulatory requirements. Whether you’re determining your SRC or EGC status, preparing for an IPO, or optimizing your compliance strategy, our team of experts is here to provide guidance and support at every step.

We offer a range of customized solutions to help businesses streamline compliance, enhance investor confidence, and align with evolving SEC regulations. From financial reporting assistance to risk management strategies, we ensure your company remains audit-ready and fully compliant with regulatory obligations.

If you have any questions or need expert assistance managing SEC compliance, PCAOB audits, or financial reporting, feel free to contact us.

Frequently Asked Questions (FAQs)

1. Can a company qualify as both an SRC and an EGC?
   Yes, a company can qualify as both an SRC and an EGC if it meets the respective thresholds. However, the benefits differ—SRCs focus on ongoing compliance relief, while EGCs receive IPO-phase exemptions to ease the transition into public markets. Companies should regularly assess their financial metrics to determine continued eligibility.

 

2. How long can a company maintain EGC status?
   EGC status lasts up to five years post-IPO or until the company exceeds $1.235 billion in annual revenue or $1 billion in non-convertible debt issuance. Once these thresholds are crossed, the company must fully comply with standard SEC regulations, which include expanded financial disclosures and internal control requirements.

 

3. What are the primary reporting differences between SRCs and EGCs?
   SRCs benefit from scaled disclosure requirements, reducing the burden of executive compensation disclosures, financial statements, and MD&A filings. EGCs enjoy temporary exemptions from certain SEC regulations to ease their IPO transition, including fewer required years of audited financials, making it easier for them to enter public markets with reduced compliance costs.

 

4. Does EGC status provide an advantage when seeking investors?
   Yes, EGC status allows companies to file IPO registration statements confidentially and communicate more openly with investors, helping them gauge market interest before going public. This flexibility makes EGCs attractive to potential investors, as they can adjust their offering and market strategy before full public disclosure.

 

5. What happens if a company no longer qualifies as an SRC or EGC?
   Once a company exceeds the eligibility thresholds, it must fully comply with SEC regulations, including expanded financial disclosures, SOX 404(b) auditor attestation, and immediate adoption of new accounting standards. Companies should plan for this transition to avoid compliance issues and maintain investor confidence.

 

6. Can an SRC voluntarily comply with complete SEC reporting requirements?
   Yes, an SRC can choose to follow full SEC reporting requirements despite qualifying for scaled disclosures. Some companies opt for this to enhance investor confidence and prepare for future growth, particularly if they anticipate surpassing the SRC eligibility thresholds soon.

 

7. What advantages do SRCs have over fully reporting companies?
   SRCs benefit from lower compliance costs, as they can provide reduced executive compensation disclosures, simplified financial reporting, and exemptions from certain regulatory requirements. These advantages help smaller companies allocate resources more effectively toward business growth rather than compliance expenses.

 

8. Can a company transition from EGC to SRC status?
   Yes, if an EGC loses its status by exceeding the revenue or debt limits, it can still qualify as an SRC if it meets the lower float and revenue thresholds. This allows the company to maintain some compliance relief even after outgrowing EGC benefits.

 

9. How do companies determine their classification annually?
   Companies should assess their public float and revenue as of the last business day of their second fiscal quarter to determine continued eligibility for SRC or EGC status. Regular monitoring ensures companies comply with SEC regulations and avoid unexpected reporting changes.

 

10. Do SRCs and EGCs receive different tax benefits?
    No, SRC and EGC status primarily affect SEC compliance and reporting requirements, not taxation. However, companies should consult tax advisors regarding state and federal incentives for smaller businesses, which may align with their classification.

 

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