Modernization of Regulation S-K Items 101, 103, and 105: A Small Entity Compliance Guide

Nov. 6, 2020

Introduction[1]

On August 26, 2020, the Securities and Exchange Commission (the “Commission”) adopted amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. These disclosure requirements have not undergone significant revisions in over 30 years. The amendments the Commission adopted update these items to reflect the many changes in our capital markets and the domestic and global economy in recent decades.

The amendments to Regulation S-K Items 101, 103, and 105 are intended to elicit improved disclosures for investors and add efficiencies to the compliance efforts of registrants. The amendments are also intended to improve the readability of disclosure documents, as well as discourage repetition and reduce the disclosure of unnecessary information.

Who is affected by the amendments?

The amendments affect both domestic registrants and foreign private issuers that file registration statements, periodic reports, proxy statements, and other documents that require disclosure under Items 101, 103, and 105. However, registrants that are smaller reporting companies are not required to provide risk factor disclosure under Item 105 in registration statements on Form 10 and annual reports on Form 10-K. Furthermore, in quarterly reports on Form 10-Q, smaller reporting companies are not required to disclose material changes from risk factors previously disclosed on Form 10-K.

What are the changes under the amendments?

The table below summarizes the amendments to Items 101, 103, and 105.

Regulation S-K Item Summary of the Amendments

Item 101(a)

Revises Item 101(a) to:

  • Be largely principles-based, requiring disclosure of information material to an understanding of the general development of the business, and eliminating the previously prescribed five-year timeframe, which provides registrants with additional flexibility to tailor their disclosure and provide information that is material to an understanding of their business; and
  • Clarify that registrants, in filings made after a registrant’s initial filing, may provide an update of the general development of the business rather than a full discussion. The update must disclose all of the material developments that have occurred since the registrant’s most recent filing containing a full discussion of the general development of its business, and incorporate by reference that prior discussion.

Item 101(c)

Revises Item 101(c) to:

  • Clarify and expand the principles-based approach of Item 101(c), with a non-exclusive list of disclosure topic examples (drawn in part from the topics currently contained in Item 101(c));
  • Include, as a disclosure topic, a description of the registrant’s human capital resources to the extent such disclosures would be material to an understanding of the registrant’s business; and
  • Include, as a disclosure topic, all material government regulations, not just environmental laws.

Item 101(h)

Revises Item 101(h) to:

  • Eliminate the three-year disclosure timeframe with respect to smaller reporting companies; and
  • Clarify that smaller reporting companies, in filings made after a smaller reporting company’s initial filing, may provide an update of the general development of the business rather than a full discussion. The update must disclose all of the material developments that have occurred since the smaller reporting company’s most recent filing containing a full discussion of the general development of its business, and incorporate by reference that prior discussion.

Item 103

Revises Item 103 to:

  • State that the required information may be provided by hyperlink or cross-reference to legal proceedings disclosure located elsewhere within the same document, such as in MD&A or a note to the financial statements, to avoid duplicative disclosure; and
  • Increase the existing threshold for environmental proceedings to which the government is a party from $100,000 to $300,000.

In addition, amended Item 103 allows registrants to select a different threshold that the registrant determines is reasonably designed to result in disclosure of material environmental proceedings, provided that the threshold does not exceed the lesser of $1 million or one percent of the current assets of the registrant and its subsidiaries on a consolidated basis. The different threshold must be disclosed (including any change to it) in each annual and quarterly report.

Item 105

Revises Item 105 to:

  • Require summary risk factor disclosure of no more than two pages if the risk factor section exceeds 15 pages;
  • Require disclosure of “material” risk factors; and
  • Require risk factors to be organized under relevant headings in addition to the subcaptions currently required, with any risk factors that may generally apply to an investment in securities disclosed at the end of the risk factor section under a separate caption.

Please refer to the release for a complete description of all amendments.

What is the compliance date of the new rule for small entities?

The amendments are effective November 9, 2020, and will apply to filings made on or after the effective date.

Other Resources

The adopting release for the amendments can be found on the SEC’s website at https://www.sec.gov/rules/final/2020/33-10825.pdf.

The SEC’s disclosure forms are available on the SEC’s website at https://www.sec.gov/forms.

Contacting the SEC Staff

The SEC’s Division of Corporation Finance is happy to assist small companies and others with questions regarding the amendments. You may contact the Division for this purpose at (202) 551-3500 or at https://www.sec.gov/forms/corp_fin_interpretive.

Questions on other SEC regulatory matters concerning smaller reporting companies or offerings made pursuant to Regulation A may be directed to the Division’s Office of Small Business Policy at (202) 551-3460.

[1] This guide was prepared by the staff of the U.S. Securities and Exchange Commission as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules and form amendments adopted by the Commission, but is not a substitute for any rule or form itself. Only the rule or form itself can provide complete and definitive information regarding its requirements.

Last Reviewed or Updated: Dec. 7, 2022