Emerging Growth Company
As a business owner, staying informed of the latest industry trends and developments is essential to remaining competitive. When the business is a startup, the importance of staying informed is even more critical as investments and decisions made early on can determine the success or failure of the company.
An emerging growth company, which is a type of startup company, must have a clear understanding of the regulations and procedures it must adhere to in order to succeed.
Definition of an Emerging Growth Company
An Emerging Growth Company (EGC) is a company that has been in business for less than five years and has a public float of less than $1 billion. EGCs are typically considered to be small- or mid-cap companies that are in their early stages of development, and they often have limited operating histories and limited access to capital.
Besides, an EGC is subject to certain exemptions from certain regulatory requirements, such as reduced disclosure and accounting requirements, making it easier for them to go public or raise capital.
Benefits of Being an Emerging Growth Company
Being an Emerging Growth Company has many benefits for entrepreneurs including:
- Offers access to capital, which can be used to fund research and development, make investments, and hire employees.
- Emerging Growth Companies are exempt from certain reporting and internal control requirements, meaning they do not need to comply with certain regulations that can otherwise be costly and time-consuming to adhere to.
- Emerging Growth Companies are eligible for certain tax advantages, like the reduced tax rate on certain types of income and the ability to carry losses back to previous years.
Requirements to Become an Emerging Growth Company
To become an Emerging Growth Company, there are a few requirements that must first be met. First, the company must have total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year.
Second, the company must have no more than $700 million in non-convertible debt outstanding as of the end of the fiscal year.
Finally, As defined in the Securities Act of 1933, the company must be a “domestic company”. By meeting these requirements and filing the appropriate documents, a company can become an Emerging Growth Company and take advantage of certain provisions of the JOBS Act.
Challenges of Being an Emerging Growth Company
The main challenge of being an EGC is the ability to remain competitive in the ecosystem. As with limited resources and a lack of brand recognition, EGC fights hard to stay amongst already established businesses. Other challenges may arise such as:
- They often lack the financial resources and access to capital to scale quickly, which can put them at a disadvantage.
- Another challenge is finding a way to attract talent – Emerging Growth Companies often have to compete with larger, more established companies who have more attractive compensation packages.
- Emerging Growth Companies often have difficulty navigating the complex regulatory landscape, especially when it comes to issues such as SEC filings and reporting requirements.
The Bottom Line
In conclusion, emerging growth companies are key contributors to the U.S. economy and have great potential for long-term growth. With the SEC’s relaxed rules, these companies have an easier time raising capital and can focus on their core business operations.