Emerging Growth Company (EGC) IPO
An Emerging Growth Company (EGC) is a classification established under the Jumpstart Our Business Startups (JOBS) Act of 2012 that grants qualifying companies reduced disclosure obligations and phased compliance requirements when accessing U.S. public capital markets, most notably during an IPO.
The JOBS Act of 2012 created the EGC designation to reduce the regulatory burden on smaller, earlier-stage companies seeking to go public, with the stated policy goal of broadening access to public capital markets. A company qualifies as an EGC in its IPO year if its annual gross revenues are below $1.235 billion (the threshold is periodically adjusted for inflation by the SEC), it has not completed its IPO more than five fiscal years prior, it has not issued more than $1 billion in non-convertible debt in the prior three years, and it is not already a large accelerated filer.
The practical benefits of EGC status are substantial. An EGC may file a registration statement confidentially with the SEC before public disclosure, allowing it to test the IPO process without revealing sensitive financial and business information to competitors until shortly before the roadshow. This confidential filing provision was one of the most commercially significant elements of the JOBS Act.
EGCs may also submit only two years of audited financial statements in their IPO registration statement, compared with three years required of larger issuers. They are exempt from the requirement that their auditor attest to the adequacy of internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act — an exemption that eliminates a meaningful compliance cost during and after the IPO.
Additionally, EGCs may take advantage of extended phase-in periods for compliance with new or revised accounting standards issued by the Financial Accounting Standards Board (FASB), allowing them to adopt changes on the same timeline as private companies rather than the accelerated timeline required of public companies. They are also permitted to provide reduced executive compensation disclosures and are exempt from certain proxy advisory rules.
The EGC designation expires upon the earliest of: the last day of the fiscal year in which annual gross revenues exceed the threshold, the last day of the fiscal year following the fifth anniversary of the IPO, the date on which the company has issued more than $1 billion in non-convertible debt in the prior three-year period, or the date on which the company becomes a large accelerated filer.
Since the JOBS Act's enactment, the majority of companies that have gone public in the U.S. have done so as EGCs, reflecting both the broad revenue threshold and the practical benefits of reduced compliance costs. The classification has been credited with a meaningful increase in smaller-company IPO activity, though critics have noted that some EGC provisions reduce the information available to public market participants during the pricing and post-listing phases.