The EGC Transition: Navigating the End of Emerging Growth Company Status

June 23, 2025

Key Takeaways

  • Calendar year-end companies that went public in 2020 will lose their EGC status on December 31, 2025. This may entail substantial regulatory and operational changes.
  • Post-EGC status, companies may need to comply with the SOX 404(b) auditor-attestation requirement, expand executive compensation disclosures and adopt new accounting standards.
  • As applicable, companies should prepare early by evaluating internal controls, upgrading financial reporting systems, and collecting additional data for executive compensation disclosures to ease the transition.

The IPO market saw unprecedented growth in 2020, with 480 IPOs (248 of which were SPACs), nearly double the number of IPOs in 2019. Life sciences and tech companies led the wave of newly public issuers with 89 life sciences companies pricing IPOs in 2020 (38% of all non-SPAC IPOs). Many of these companies qualified for Emerging Growth Company (EGC) status under the JOBS Act of 2012, providing them with scaled disclosure requirements, reduced governance burdens and a more cost-efficient path to public company life. Under the JOBS Act, EGC status generally ends, at the latest, on the last day of the fiscal year following the fifth anniversary of an IPO. For calendar-year companies that went public in 2020, this means EGC status will terminate on December 31, 2025. The sunset of EGC status brings with it several important regulatory and operational shifts that require advance planning. In this Dechert OnPoint, we outline what public companies need to know about the transition and how to prepare.

What Is an Emerging Growth Company?

A company qualifies as an EGC under the JOBS Act at IPO if it has less than $1.235 billion in total annual gross revenues during its most recently completed fiscal year, as adjusted for inflation.

EGC status provides significant benefits, including:

  • Exemption from the auditor-attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.
  • Reduced executive compensation disclosure requirements.
  • More streamlined MD&A disclosures.
  • Delayed adoption of new accounting standards.

When Does EGC Status End?

Under Section 101 of the JOBS Act, issuers lose their EGC status on the earliest of:

  1. The last day of the fiscal year during which they exceed $1.235 billion in total annual gross revenues.
  2. The date they are deemed a "large accelerated filer" by virtue of being subject to Exchange Act reporting requirements for 12 calendar months and reaching a public float of $700 million or more.
  3. The date they have issued more than $1 billion in non-convertible debt in the previous three years.
  4. The last day of the fiscal year following the fifth anniversary of their IPO.

For 2020 IPO companies with calendar year-ends, this means their EGC status will sunset on December 31, 2025, regardless of current size or financial performance, unless one of the other triggers has already occurred.

What Changes after EGC Status Ends?

When companies lose their EGC status, they face several changes to their reporting and compliance obligations (smaller reporting companies have reduced requirements, as discussed below):

  • Sarbanes-Oxley Act (SOX) 404(b) Compliance: EGCs are exempt from the requirement under Section 404(b) of SOX to obtain an external auditor attestation regarding the effectiveness of internal controls over financial reporting (ICFR). Once EGC status ends, companies must comply with SOX 404(b). For 2020 IPO companies with calendar year-ends, this means that SOX 404(b) auditor attestation must be completed for the year ended December 31, 2025, and reported on the Annual Report on Form 10-K filed in early 2026. This process often requires substantial investment in documentation, testing, and remediation of control weaknesses.
  • Executive Compensation Disclosures: When companies lose their EGC status, they must provide expanded executive compensation disclosures, including a Compensation Discussion and Analysis (CD&A) section and additional compensation tables, such as Potential Payments Upon Termination. They are required to report three years of compensation disclosure for five named executive officers (rather than only two years of disclosure for three named executive officers). They must also include pay-versus-performance (PVP) disclosure and CEO pay-ratio disclosure (after one full year of losing EGC status), and obtain Say-on-Pay and Say-on-Frequency shareholder votes.
  • Financial Statement Requirements: In registration statements, non-EGCs must provide three years of financial statements rather than two, along with corresponding MD&A discussions.
  • Accounting Standard Implementation: The transition from EGC status eliminates the option to have an extended implementation period for new accounting standards. Companies must adopt new standards on the public company timeline, which could require retroactive implementation of standards they had previously deferred.

Key Planning Steps

Companies approaching the end of their EGC status should begin preparation well in advance. Planning steps include:

  • Evaluate Disclosure Controls and ICFR: 
    • Conduct a gap analysis of the company’s current internal controls against SOX 404(b) requirements.
    • Assess financial reporting systems and provide enough time and resources for any necessary upgrades.
    • Consider engaging your external auditor for readiness assessments or conducting a mock audit to identify and address potential issues before they arise in actual audits.
    • Establish a detailed timeline and process with your external auditor for the first SOX 404(b) attestation.

The implementation of SOX 404(b) is often the most challenging aspect of EGC transition, so begin preparations early.

  • Enhance Executive Compensation Disclosures:
    • Begin collecting and analyzing the additional data that will be required under the expanded executive compensation disclosure requirements.
    • Draft preliminary CD&A sections and additional compensation tables.
    • Work with the company’s compensation committee and outside advisors to prepare for CEO pay ratio, peer group benchmarking and PVP disclosure.
  • Stakeholder Education
    • Brief the board, audit committee and compensation committee on the changes in reporting requirements and their enhanced oversight responsibilities post-EGC status.
    • Coordinate with the company’s investor relations team to proactively address the upcoming disclosure changes.

Smaller Reporting Companies — Additional Accommodations even after Loss of EGC Status

Maintaining smaller reporting company (SRC) status upon losing EGC status can significantly reduce the burdens of the transition. An SRC is a company with either (a) less than $250 million in public float or (b) annual revenues under $100 million with a public float below $700 million. SRC status provides several accommodations that overlap with EGC accommodations:

  • SRCs Remain Exempt from SOX 404(b) Auditor-Attestation Requirements if also a Non-Accelerated Filer
    • A non-accelerated filer is a company with a public float under $75 million or that qualifies as an SRC under the revenue test set forth above.
    • Non-accelerated filer status is assessed on the last day of the prior year’s second quarter, so for calendar-year companies coming up on losing their EGC status, monitoring their public float on June 30, 2025, will determine whether they need to comply with the 404(b) auditor-attestation requirement for their 10-K for the year ended December 31, 2025, filed in early 2026.

Strategically managing capital-raising and other activities that could affect SRC or non-accelerated status on the assessment date could be a valuable strategy.

  • SRCs Can Generally Continue Providing EGC-Level Compensation Disclosure 
    • With one exception, SRCs do not need to expand their compensation disclosure from what they were previously reporting as an EGC, so they would not be required to include a CD&A or report compensation for five named executive officers.
    • With respect to PVP disclosure, however, there are accommodations with respect to the PVP disclosure for SRCs that reduce the amount of information otherwise required for non-EGCs.
    • Companies are still required to hold Say-on-Pay and Say-on-Frequency votes, regardless of SRC status.

Conclusion

The transition from EGC status represents a significant milestone for a public company and may come with new or expanded accounting and disclosure obligations, including the requirement to obtain an external auditor attestation, expanded executive compensation disclosures and longer required time periods for financial statements. While the loss of regulatory accommodations presents challenges, companies can manage the transition smoothly with advance planning and preparation.

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