Under the rule amendments, the SEC significantly revises public company business disclosure rules for the first time in more than 30 years. The amendments were crafted from a proposed rule released in August 2019 that was part of a comprehensive review by the SEC of the disclosure requirements per a study mandated by the JOBS Act.
In modernizing the rules, the SEC makes the following updates to Regulation S-K, among other things:
- Revise Item 101(a) by making the description of general development of business largely principles-based, requiring disclosure of information material to understanding the description, eliminating the prescribed five-year timeframe for the disclosure, and permitting a registrant to provide only updates on material developments of its business in filings after its initial filing.
- Revise Item 101(c) by making the narrative description of business less burdensome by “clarifying and expanding its principles-based approach,” as well as specifically requiring the disclosure of material human capital resources including material human capital measures or objectives on which management focuses in managing the business and including in the regulatory compliance disclosure requirements all material government regulations, not just environmental.
- Revise Item 103 by expressly stating that legal proceeding disclosures may be provided by hyperlinks or cross-references to disclosures located elsewhere in the documents and providing for increased disclosure thresholds and flexible disclosure requirements related to environmental proceedings.
- Revise Item 105 to require that risk factor disclosures include a maximum two-page summary if the risk factors exceed 15 pages, are only those that are “material” as opposed to the “most significant” factors, and are organized under appropriate headings, as well as requiring that all risk factors related to investment in the securities be disclosed under a separate heading at the end of the risk factor section.
The amendments will be effective 30 days after publication in the Federal Register.