A company qualifies as an EGC if it had total annual gross revenue of less than $1.235 billion in its most recently completed fiscal year at the time of its IPO. EGC status lasts until the earliest of the last day of the fiscal year in which the fifth anniversary of the IPO occurs, the last day of the fiscal year in which total annual gross revenue first exceeds $1.235 billion, the date on which the company has issued more than $1 billion in non-convertible debt during the prior three-year period, or the date on which the company becomes a large accelerated filer (public float exceeding $700 million). In Gurpreet Bal's experience at Foley and Lardner, most Silicon Valley technology companies that go public qualify as EGCs, and the five-year runway provides meaningful cost savings and regulatory flexibility during the critical early years as a public company.
EGCs may confidentially submit draft registration statements to the SEC for review before publicly filing, allowing the company to receive and respond to SEC comments without public disclosure of the offering plans. This is particularly valuable for companies that are uncertain about market timing or that want to address SEC comments before competitors, customers, and employees become aware of the IPO plans. Separately, the JOBS Act permits EGCs to engage in testing the waters communications with qualified institutional buyers (QIBs) and institutional accredited investors before or after filing the registration statement. These communications allow the company to gauge institutional investor interest and refine its equity story before committing to the full roadshow process. Gurpreet S. Bal advises companies on the scope and documentation of testing the waters communications to ensure compliance with SEC requirements.
EGCs are required to include only two years of audited financial statements in the S-1 registration statement, compared to three years for non-EGC companies. EGCs also benefit from reduced executive compensation disclosure, requiring only a Summary Compensation Table and Outstanding Equity Awards at Fiscal Year-End table for three named executive officers (rather than five), with no CD&A requirement. These reduced disclosure requirements lower the cost and complexity of IPO preparation and ongoing public company reporting. Gurpreet Bal notes that while these exemptions are available, some companies choose to provide additional disclosure voluntarily to meet institutional investor expectations.
The most significant cost-related EGC benefit is the exemption from SOX 404(b) auditor attestation of internal controls over financial reporting. The external auditor attestation requirement can cost $1 million to $3 million annually for technology companies. EGCs must still conduct management's own assessment under SOX 404(a), but the elimination of the external attestation requirement significantly reduces the cost of compliance during the EGC period. Gurpreet S. Bal advises companies to develop a transition plan that identifies the expected date of EGC status expiration and begins building the internal control infrastructure and auditor readiness necessary for SOX 404(b) compliance at least 18 months before the transition date, to avoid a rushed and costly implementation.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises startups, founders, and investors on venture financings, M&A, IPOs, and corporate governance. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. Gurpreet's recent IPO experience includes leading company representation in the only sub-$1 billion U.S. semiconductor IPO in 2024.