SEC expands confidential review process to facilitate capital formation

By Josh Kaufman, Sanjay Shirodkar & Jenna Fontenot on March 5, 2025

Posted in SEC developments, Securities offerings, Securities registration, SPACs

Companies seeking to raise capital through a public offering are encouraged to note the US Securities and Exchange Commission (SEC)’s announcement on March 3, 2025 that the staff of the Division of Corporation Finance (SEC staff) has augmented the accommodations available for entities submitting draft registration statements for nonpublic review, allowing for greater flexibility in the capital-raising process.

Below, we set out key details and implications for companies.

Background

A draft registration statement is a comprehensive document that a company prepares and files with the SEC in anticipation of offering its securities to the public. The SEC staff meticulously reviews the draft registration statement and furnishes comments that the company must address prior to the registration statement being declared effective, thereby enabling the company to proceed with the sale of its securities.

The SEC staff offers this nonpublic review process to select companies, enabling them to submit their draft registration statements for confidential staff review, thereby delaying public disclosure of the draft on EDGAR, the SEC’s online database.

Beginning with its enactment under the Jumpstart our Business Startups Act (JOBS Act) in 2012, the nonpublic review process was initially exclusively available to emerging growth companies but was expanded in 2017 to encompass all companies undertaking initial public offerings (IPOs) as well as for follow-on offerings made within one year after an IPO. This mechanism allows companies to receive feedback from the SEC staff prior to public disclosure and make necessary revisions to their draft registration statements, thereby allowing the company flexibility in planning its offering and enabling the company to mitigate potential delays, errors, or adverse market reactions without public scrutiny. Critically, for companies that are already public, confidential review allows them to avoid potential adverse market reaction to its stock price from anticipated dilution. Additionally, in certain circumstances, a draft registration statement could remain permanently confidential if the company decides not to proceed with the contemplated offering.

The company can determine when to publicly file its draft registration statement. However, the company must publicly file its registration statement at least 15 business days prior to initiation of a road show or requesting the SEC staff to declare its registration statement effective.

New enhancements to the nonpublic review process

On March 3, 2025, the SEC staff unveiled further enhancements to the nonpublic review process, which include:

Expanding the array of forms eligible for submission as draft registration statements for nonpublic review. Beyond the forms utilized for IPOs and follow-on offerings, such as Forms S-1, S-3, and F-1, the SEC staff will now accept draft registration statements on a nonpublic basis for the initial registration of a class of securities under the Securities Exchange Act of 1934 (Exchange Act), including Forms 10, 20-F, and 40-F.
Permitting reporting companies to submit draft registration statements for nonpublic review irrespective of the time elapsed since their IPOs. Previously, the nonpublic review process was confined to companies that conducted their follow-on offerings within one year of an IPO. The SEC staff will now accept draft registration statements for any offering under the Securities Act of 1933 or registration under the Exchange Act from any reporting company, regardless of the duration of their post-IPO reporting obligations.
Allowing companies to omit the names of any underwriters from their initial draft registration statement submissions. This enables companies to commence the nonpublic review process earlier, deferring the disclosure of any underwriters until subsequent submissions or public filings.

The SEC staff further clarified that it will accept draft registration statements for nonpublic review in the context of a de-SPAC transaction – a business combination between a public special purpose acquisition company (SPAC) and a private target company – where the target company is eligible to submit a draft registration statement under the nonpublic review process. The SEC staff articulated that this approach aligns with its perspective that a de-SPAC transaction is functionally equivalent to the target company’s IPO.

Conclusion

The enhanced nonpublic review process represents a significant advantage for companies planning to go public or raise capital through public offerings, as it affords them greater flexibility in navigating the SEC staff review process and prevailing market conditions. Companies considering going public or raising capital are encouraged to consult with their legal advisors to ascertain whether the newly expanded nonpublic review process aligns with their specific circumstances and objectives.