New law lets company keep finances secret
Last week the social network announced in its 140-character way that it was preparing to sell shares to the public and that it had confidentially filed the necessary paperwork with regulators. A law adopted in April 2012 allowed Twitter to act in secret and keep under wraps some of its key financial data.
The new law allows firms with annual revenue of less than $US1 billion temporarily to bypass some regulatory hurdles as they file initial public offerings (IPOs). The idea is to make it easier for these "emerging growth companies" to go public, grow and hire more workers.
The companies have a menu of options they can select from, and Twitter chose a popular one by confidentially submitting the IPO paperwork to the Securities and Exchange Commission.
The financial details in that paperwork — such as whether the firm is profitable, what it pays its employees or what kinds of risks it faces — will not be made public until 21 days before Twitter's roadshow, when it starts to market itself to potential investors.
About two-thirds of the 132 IPOs priced in the US this year opted for confidential filings.
The relaxed rules only apply for up to five years, or possibly less if a company's revenue hits $US1 billion or the company meets other criteria laid out in the law.
Frequently Asked Questions about this Article…
The law adopted in April 2012 created a new category called "emerging growth companies" and lets firms with annual revenue under US$1 billion temporarily bypass some regulatory hurdles when filing initial public offerings (IPOs), including options to keep certain financial details confidential during the early stages of the IPO process.
A confidential filing means a company submits its IPO paperwork privately to the Securities and Exchange Commission rather than making those financial details public immediately. Key items such as profitability, employee pay and the kinds of risks the company faces are withheld until later in the process.
Companies that report annual revenue of less than US$1 billion can qualify as "emerging growth companies" under the law and may choose from a menu of relaxed rules, including confidentially submitting IPO paperwork to the SEC.
The relaxed rules apply for up to five years after a company qualifies as an emerging growth company, though the period can be shorter if the company’s revenue reaches US$1 billion or it meets other criteria set out in the law.
Financial details that were kept confidential — such as whether the company is profitable, what it pays employees, and the risks it faces — are not made public until 21 days before the company’s roadshow, when it begins marketing the IPO to potential investors.
Confidential filings have become common: about two-thirds of the 132 IPOs priced in the US this year opted to file confidentially.
Companies often choose confidential filings to avoid disclosing sensitive financial details too early, to reduce some regulatory burdens while they prepare to go public, and to give themselves flexibility to grow and hire before releasing full public disclosures — a path Twitter used when it prepared to sell shares.
Investors should be aware that key financial information will not be available until 21 days before the roadshow, so early-stage public details will be limited. Knowing that confidentiality is allowed for qualifying emerging growth companies — and that it lasts up to five years or until revenue thresholds are met — can help set expectations about the timing of full disclosures.
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