Directors, executive officers and significant shareholders of a public company are subject to a number of reporting obligations and trading limitations relating to their ownership of and transactions in the company’s securities. Compliance with these rules requires strong procedures for both the company and its insiders. This chapter gives an overview of these reporting requirements and trading limitations and suggests ways in which a public company and its insiders can best comply with them. 

Practical Tip: How to Keep Pace with Periodic Reporting? Maintain a Periodic Reporting Disclosure Checklist

Corporate failures, starting in the late 1990s and early 2000s, focused public attention on the integrity and quality of disclosures in companies’ annual, quarterly and current reports. Reforms to periodic reporting and corporate governance have been instituted through NYSE, Nasdaq and SEC implementation of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). These initiatives have thrust the most basic of public company obligations – periodic reporting – into the forefront of directors’ and officers’ attention, and challenge even the most organized companies to keep track of what must be disclosed in reports filed with the SEC.

In Appendix 1, we provide companies with a model Annual 1934 Act Reporting Calendar, which we discuss in greater detail in this and later chapters. We urge you to use this model to create a comparable checklist for your company. Preparing your company’s 1934 Act reports will require extensive input from your Disclosure Practices Committee, discussed later in this chapter, and finance and legal departments, as well as review by outside auditors and lawyers. To ensure that your working group remains on schedule and to allow adequate review time, circulate your 1934 Act reporting calendar to the members of the working group well in advance of each reporting cycle.

CEO and CFO Certifications and Disclosure Practices

Public company CEOs and CFOs must certify each annual report on Form 10-K and each quarterly report on Form 10-Q. To ensure that a disclosure system is in place to backstop these certifications, each company must also maintain disclosure controls and procedures and internal control over financial reporting.

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Certifications by CEO and CFO

In each Form 10-Q and 10-K, a company’s CEO and CFO are each required to provide two separate certifications, a “Section 302” certification and a “Section 906” certification. In a Section 302 certification, the CEO and CFO make statements in two areas:

  1. Accuracy of Report. The CEO or CFO has reviewed the report, and to the CEO’s or CFO’s knowledge:
    • The report does not contain any material misstatements or omissions; and
    • The financial statements, and other financial information included in the report, fairly present in all material respects the company’s financial condition, results of operations and cash flows.
  2. Controls and Procedures. The CEO or CFO is responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting, and has:
    • Designed the disclosure controls and procedures to ensure that all material information is made known to the CEO and CFO;
    • Designed the internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in conformity with generally accepted accounting principles (GAAP);
    • Evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by the Form 10-Q or 10-K and described in the Form 10-Q or 10-K the effectiveness of the disclosure controls and procedures based on the evaluation;
    • Indicated in the Form 10-Q or 10-K whether there were any changes in the internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting; and
    • Disclosed to the company’s auditors and Audit Committee any significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting or any fraud that involves employees who have a significant role in internal control over financial reporting.

In a Section 906 certification, the CEO and CFO make two basic statements that overlap with their Section 302 certifications:

  • The periodic report containing financial statements fully complies with the requirements of the 1934 Act; and
  • Information contained in the report fairly presents, in all material respects, the company’s financial condition and results of operations.

Unlike the Section 302 certification, the Section 906 certification may take the form of a single statement signed by both the CEO and CFO, and may be “furnished” rather than “filed” with the related report. (We discuss the difference between “furnishing” and “filing” later in this chapter.) Section 302 and Section 906 certifications are submitted as exhibits to Forms 10-K and 10-Q, and need not accompany reports on Form 8-K or 11-K.

Disclosure Controls and Procedures

To back up the certifications, companies maintain a system of disclosure controls and procedures designed to ensure that the company records, processes, summarizes and discloses on a timely basis information required to be disclosed in 1934 Act filings. Companies also need to evaluate on a quarterly basis the effectiveness of their disclosure controls and procedures. The phrase “disclosure controls and procedures” is broad in scope and extends beyond financial matters to cover all controls and procedures relating to required disclosure, including interactive data. (We discuss interactive data filing requirements later in this chapter.)

Internal Control Assessment

The most costly and controversial aspect of Sarbanes-Oxley is the internal control requirement of Section 404. Section 404 and related rules require each public company to include in its Form 10-K a management report on the effectiveness of the company’s internal control over financial reporting, beginning with the company’s second annual report on Form 10-K after becoming a reporting company. If the company, other than an emerging growth company, is an accelerated or large accelerated filer (generally companies with market capitalizations of more than $75 million and, for smaller reporting companies, annual revenues of $100 million or more), the company’s independent auditor is required, in a separate audit-like analysis, to attest to, and report on, management’s assessment. (We discuss emerging growth companies later in this chapter.)

Internal control over financial reporting includes policies and procedures that:

  • Track Transactions in Assets – relate to the maintenance of records that in reasonable detail accurately and fairly reflect the acquisitions and dispositions of assets.
  • Control Receipts and Expenditures – provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and directors.
  • Protect Assets – provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.

Management needs to base its internal control evaluation on some “recognized control framework” in order to have a widely accepted standard of comparison. The SEC identified the Committee of Sponsoring Organizations of the Treadway Commission (COSO) report “Internal Control – Integrated Framework,” which framework was updated in 2013, as the evaluation framework of choice. Although the SEC does not mandate any particular framework, U.S. companies quickly adopted the COSO report as the standard, indeed as the only realistic standard readily available for domestic issuers.

Methods of conducting evaluations of internal control vary from issuer to issuer. Companies should review, among other publications, COSO’s “Guidance on Monitoring Internal Control Systems” released in 2009 (and, if applicable, COSO’s guidance on “Blockchain and Internal Control: The COSO Perspective” released in 2020). The COSO 2009 report expanded on the guidance issued in prior COSO publications, and remains relevant even after publication of the updated 2013 framework. Although the SEC does not specify the methods or procedures to be used, it has made the following observations that encourage documentation – one of the expensive side effects of internal control:

  • Develop – and Test – Procedures. Management must base its assessment on procedures to evaluate the design of internal control over financial And management then should “actively” test its operating effectiveness, going beyond simple inquiry.
  • Incorporate Test Results. Management must base its assessment on evidence, including documentation of the internal control design, and on the process and results of testing.
  • Keep Records. Companies should develop, and maintain in company records, documentation and other evidence that support management’s assessment.
  • Coordinate with Outside Auditors. Outside auditors can help, within Management must be actively involved in the process and cannot delegate its responsibility to assess internal control to the auditor. However, the SEC recognizes the need for coordination between management and auditors. For example, the auditor may provide advice and recommend improvements to internal control, so long as management, and not the auditor, makes the accounting decisions. Also, someone other than the auditor (management or a third-party provider) needs to design the control procedures, because for an auditor to do so would place it in the position of auditing its own work and violate auditor independence rules.

If a company identifies a material weakness, it must disclose the existence of the material weakness in its Form 10-K, and management is not permitted to conclude that the company’s internal control over financial reporting was effective for that period. The SEC defines material weakness to be a deficiency, or a combination of deficiencies, in internal control over financial reporting that creates a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The SEC encourages companies to provide additional disclosure to allow investors to assess the potential impact of the material weakness. Experience has shown that analysts and investors are, with sufficient information, able to quickly assess the impact, in many cases with no negative effect on stock price or company reputation. The SEC’s three suggested topics are useful as a checklist for disclosure:

  • The nature of the material weakness;
  • Its impact on financial reporting and the control environment; and
  • Management’s plans, if any, or actions already undertaken, for remediating the weakness.

Practical Tip: Form a Disclosure Practices Committee

Most widely traded public companies follow an SEC recommendation to establish a non-Board “Disclosure Practices Committee.” This Committee of officers and employees develops and oversees the procedures that support the CEO’s and CFO’s Sarbanes-Oxley certifications. The Committee’s mandate is simple:

  • Identify and analyze information for inclusion in 1934 Act reports;
  • Develop, implement and evaluate disclosure controls and procedures and internal control over financial reporting (under the supervision of the CEO and CFO); and
  • Review all SEC filings, press releases containing financial information or a discussion of material events, correspondence broadly disseminated to shareholders, presentations to analysts and the investment community, and disclosure policies for the company’s corporate/investor relations website.

The Committee should be composed of two to ten officers or employees from the key functional areas in your company best able to gather and analyze material financial and other information. The SEC suggests including the following individuals:

  • Controller or principal accounting officer;
  • General counsel or lawyer responsible for disclosure;
  • Risk management officer;
  • Investor relations officer;
  • Human resource manager; and
  • Internal audit manager.

The Disclosure Practices Committee should meet at least three times during each quarter to fulfill its three categories of duties:

  1. Information Gathering. Put into place and oversee the internal procedures for gathering information for possible disclosure in your company’s 1934 Act reports. For example, interview personnel who have authority over significant business functions or subsidiaries.
  2. Review and Communication. Analyze the materiality of information collected and communicate recommendations to management to allow timely decisions regarding required disclosures. 
  3. Evaluation and Improvement. Evaluate your company’s disclosure controls and procedures and internal control over financial reporting. Identify weaknesses and recommend improvements.

The Committee or its chair will report its conclusions to the CEO, CFO and, possibly, the Audit Committee.

Forms 10-K and 10-Q Filing Deadlines

Filing deadlines for Forms 10-K and 10-Q depend on the company’s category of filer as set forth below:


  • Accelerated Filer. Companies that:
    • Have a public equity float of at least $75 million but less than $700 million as of the last business day of the most recently completed second fiscal quarter;
    • Have been subject to the 1934 Act’s reporting requirements for at least 12 calendar months;
    • Previously have filed at least one annual report on Form 10-K; and
    • Are not eligible to use the scaled disclosure requirements for smaller reporting companies for Forms 10-K and 10-Q under the revenue test for smaller reporting companies described in this section.
  • Large Accelerated Filer. Companies that have a minimum public equity float of $700 million as of the last business day of the most recently completed second fiscal quarter and that otherwise meet the definition of accelerated filer.
  • Non-Accelerated Filer. Companies that do not meet the definition of accelerated filer or large accelerated filer.
  • Smaller Reporting Company. Companies that are not investment companies, asset-backed issuers or majority- owned subsidiaries of a larger reporting company parent and that:
    • Had a public equity float of less than $250 million as of the last business day of the most recently completed second fiscal quarter; or
    • Had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available and either a public float of less than $700 million or no public float (e.g., wholly owned subsidiaries and debt-only issuers) as of the last business day of the most recently completed second fiscal quarter.

Smaller reporting company status and entry into or exit from accelerated filer and large accelerated filer status is determined annually. A smaller reporting company with a public float of at least $75 million that had $100 million or more in annual revenues will qualify as an accelerated filer. For accelerated filers and large accelerated filers, once filer status is determined, subsequent determinations of filer status are based on public float. The table below summarizes how a company’s status changes based on subsequent public float determinations:

Initial Public Float Determination

Resulting Filer Status

Subsequent Public Float Determination

Resulting Filer Status

$700 million or more

Large Accelerated Filer

$560 million or more

Large Accelerated Filer

Less than $560 million but $60 million or more

Accelerated Filer

Less than $60 million

Non- Accelerated Filer

Less than $700 million but $75 million or more

Accelerated Filer

Less than $700 million but $60 million or more

Accelerated Filer

Less than $60 million

Non- Accelerated Filer

The table below summarizes the Forms 10-K and 10-Q filing deadlines for each category of filer:

Category of Filer

Form 10-K Deadline

Form 10-Q Deadline

Large Accelerated Filer ($700+ MM)

60 days after year-end

40 days after quarter-end

Accelerated Filer (between $75 MM and $700 MM)

75 days after year-end

40 days after quarter-end

Non-Accelerated Filer (less than $75 MM)

90 days after year-end

45 days after quarter-end

Integrated Disclosure Under Regulations S-K and S-X

Regulation S-K, the SEC’s disclosure guidance “cookbook,” sets forth detailed disclosure requirements governing the content of 1934 Act periodic reports. Regulation S-K is a centralized source of disclosure requirements for periodic reports, proxy solicitations, registration statements and other filings pursuant to the 1933 and 1934 Acts.

Regulation S-X is the financial information counterpart to Regulation S-K. Regulation S-X provides the centralized source of requirements for the form and content of financial information required to be included in filings under the 1933 and 1934 Acts.

Scaled Disclosure for Smaller Reporting Companies

For some disclosure items, Regulations S-K and S-X provide scaled disclosure requirements for smaller reporting companies. For example, smaller reporting companies are only required to provide two years of audited income statements (instead of the three years required for larger companies) and are not required to include compensation discussion and analysis (CD&A) disclosure (discussed in Chapters 2 and 7) in their Form 10-Ks or proxy statements. Smaller reporting companies may choose to comply with scaled or nonscaled financial and nonfinancial disclosure requirements on an item-by-item basis in any one filing. However, where the smaller reporting company requirement is more rigorous, the smaller reporting company must satisfy the more rigorous standard. For example, the related person transactions disclosure requirement (discussed in Chapter 7) is more stringent for smaller reporting companies, establishing a potentially lower dollar threshold and requiring a two-year lookback. Companies that meet the smaller reporting company standard should consult with counsel regarding these scaled disclosure requirements.

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Practical Tip: Exemptions and Scaled Disclosure for Emerging Growth Companies

The JOBS Act was enacted in 2012 to spur job creation by improving access to capital for smaller companies. Among other things, the JOBS Act relaxed certain requirements relating to IPOs by creating a new category of issuers called “emerging growth companies,” and eased certain post-IPO disclosure requirements for these issuers.

An emerging growth company (EGC) is a company with less than $1.07 billion in total annual gross revenue during its most recently completed fiscal year. EGC status is determined in connection with a company’s IPO. The company can continue to have EGC status until the earliest of:

  • the last day of the fiscal year on which it has total annual gross revenue of $1.07 billion or more;
  • the last day of the fiscal year following the fifth anniversary of its IPO;
  • the date on which it has, during the previous three-year period, issued more than $1 billion in nonconvertible debt; and
  • the date on which it is considered a “large accelerated filer” under the 1934 Act.

The annual gross revenue threshold is updated every five years for inflation. Among the post-IPO benefits of EGC status are exemption from the Dodd-Frank Act say-on-pay vote requirements (discussed further in Chapter 7), exemption from the requirement to include an audit of internal control assessment in its Form 10-K, and the ability to take advantage of the smaller reporting company scaled disclosure provisions for executive compensation reporting.

Interactive Data

Data submitted in XBRL (eXtensible Business Reporting Language) format is often referred to as “interactive data.” The XBRL process requires a company to tag certain numbers and content in filings to allow easy identification, extraction and comparison by computer programs. The SEC began requiring companies to use XBRL in 2009, and, on a phased-in basis starting in 2019, began requiring the use of Inline XBRL (iXBRL). The iXBRL format allows XBRL data to be embedded directly into the filing itself, avoiding the need to create and attach a separate exhibit. This change also makes filings more interactive for users (they can hover over tagged data points for additional information) and allows computers to more easily search, gather and analyze data contained in SEC filings.

The iXBRL tagging requirements apply to financial statements and accompanying footnotes and schedules located in registration statements (other than IPO registration statements) and in Forms 10-Q, 10-K and 8-K.

Hyperlinks for Documents Incorporated by Reference and Exhibits

Documents incorporated by reference into a filing, as well as exhibits listed in an exhibit index in a registration statement or report pursuant to Item 601 of Regulation S-K, must be hyperlinked to the incorporated document as filed on the SEC’s EDGAR website, which we discuss later in this chapter. These hyperlinking rules streamline the filing process by allowing companies to link to previously filed documents. These rules also make it easier for investors and other market participants to find and access incorporated-by-reference documents and exhibits.

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Companies should be careful to identify and include the required hyperlinks for documents incorporated by reference. However, companies do not need to file an amendment to a document solely to correct an inaccurate hyperlink; they can simply correct it on the next filing. While hyperlinks are required for material that is incorporated by reference, companies should use inactive textual references for any other websites, such as reports available on the company’s investor relations website, to avoid such referenced websites being considered part of the filing.

Practical Tip: Build in Time to Add iXBRL Tags and Hyperlinks

Tagging inline interactive data accurately and consistently, and inserting hyperlinks in an EDGAR filing, adds extra steps to the filing process. Whether your company prepares filings internally using software that facilitates EDGAR filings or uses an outside service provider, be sure to build in time for the filing team to prepare and proof iXBRL tags and hyperlinks.

In particular, companies will want to consider the impact on timing in a few specific instances:

  • The first time a company asks an outside service provider to file each type of report;
  • When the filing has a significant number of documents or exhibits incorporated by reference;
  • If the filing is long or not a regular report; and
  • When making more than one filing in sequence, and one or more earlier filings is incorporated by reference in the later filings.

Annual Report on Form 10-K

A public company must file an annual report on Form 10-K following the end of each fiscal year. The first Form 10-K is due 90 days after the end of the first fiscal year in which the issuer becomes subject to the periodic reporting requirements of the 1934 Act. (We summarize the filing deadlines for subsequent years earlier in this chapter.)

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Information Included in Form 10-K

Form 10-K is the most comprehensive periodic report filed with the SEC. It includes much of the same information that is required in a registration statement filed for an IPO under the 1933 Act. Required information includes:

  • A description of the company’s business, including the general development of the business and the business done and intended to be done by the company;
  • MD&A – management’s discussion and analysis of financial condition and results of operations (discussed in more detail below);
  • Qualitative and quantitative disclosure about market risks (smaller reporting companies are not required to provide this disclosure);
  • A description of material legal proceedings;
  • Full year-end audited financial information, including the independent auditor’s opinion, in compliance with Regulation S-X, and a discussion of any material retrospective changes;
  • Management’s conclusions regarding the effectiveness of the company’s disclosure controls and procedures as of the end of the fourth quarter; and
  • Management’s report on internal control over financial reporting and (for accelerated and large accelerated filers, other than emerging growth companies) the related independent auditor’s attestation.

The following items, known as “Part III” information, are also required, but companies that file a proxy statement within 120 days after the end of the fiscal year may meet these requirements by including these items in the proxy statement and incorporating them by reference into the Form 10-K:

  • Information regarding directors, executive officers and more than 5% beneficial owners, including compensation, transactions with related parties and security ownership;
  • Identification of the company’s Audit Committee financial expert or experts (if a company does not have at least one financial expert on its Audit Committee, the company must explain why);
  • Identification of independent directors and committee members;
  • Report of the Compensation Committee and any compensation committee interlocks (smaller reporting companies are not required to provide this disclosure);
  • Disclosure of whether or not (and if not, why not) the company has adopted a code of ethics for its principal executive officer, principal financial officer and principal accounting officer or controller;
  • Textual and tabular information regarding equity compensation plans; and 
  • Disclosure of the fees billed by the company’s independent auditor for audit, audit-related, tax and other fees and of the Audit Committee’s preapproval policy for audit and nonaudit services.

Signatures and Certifications

The company’s principal executive officer, principal financial officer and principal accounting officer, along with at least a majority of the members of the company’s Board, must sign the Form 10-K. (We discuss requirements for the use of electronic signatures later in this chapter.)

In addition, the CEO and CFO must each sign Section 302 certifications and a Section 906 certification for each Form 10-K.


The heart and soul of the Form 10-K is MD&A, management’s discussion and analysis of financial condition and results of operations. MD&A, governed by Item 303 of Regulation S-K, requires a discussion of liquidity, capital resources, results of operations and other information necessary to an understanding of the company’s financial condition, changes in financial condition and results of operations.

In December 2003, the SEC issued detailed interpretive guidance regarding disclosure in MD&A, including key concepts that continue to be extremely helpful guidelines for the drafters of MD&A. In adopting amendments to Regulation S-K Item 303 that became effective in February 2021, the SEC underscored the 2003 guidance and codified it in part through a new section outlining the objective of MD&A. The following are key concepts for consideration in preparing MD&A.

Through Your Eyes: The Purpose of MD&A

  • The purpose of MD&A is to “allow investors to view the registrant from management’s perspective” and to provide readers with the information they need to readily understand the company’s financial condition and performance.

 Overall Presentation

  • Include an executive-level overview to provide a context for the presentation of MD&A.
  • Encourage top-level participation in the drafting process.
  • Give the greatest prominence to the most important information.
  • Omit duplicative information, like information already included in financial statement footnotes.

 Focus and Content

  • What are the key performance metrics that management uses to run the business? Identify and discuss them.
  • Focus on material information and eliminate the immaterial.
  • Disclose known trends and uncertainties and their impact on the company’s prospects. (This is required MD&A disclosure – not just a best practice – and a healthy MD&A will provide a thoughtful CEO’s-eye view of trends.)
  • Explain management’s view of the significance of the information presented.
  • Where there have been material changes in one or more line items of the financial statements, discuss the underlying reasons for these material changes in quantitative and qualitative terms.

 Substantive Guidance

  • Liquidity and Capital Resources. Focus analysis on the company’s ability to generate and obtain adequate cash to meet its requirements and plans for cash in both the short term (i.e., the next 12 months) and the long term (i.e., beyond the next 12 months). The discussion should identify trends, demands, commitments and uncertainties relating to liquidity and capital resources, such as any trends or uncertainties relating to the ability to access the capital markets. In addition, the SEC has advised companies to consider disclosure, where material, regarding intraperiod variations in liquidity and capital resources (e.g., arising from the issuance of commercial paper), the company’s cash and risk management policies and the nature and composition of the company’s cash portfolio. Companies should also consider enhanced disclosure regarding debt instruments, guarantees and related covenants, such as leverage ratios.
  • Critical Accounting Estimates. Provide information necessary to understand estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had a material impact on financial condition or results of operations. While the MD&A amendments effective in February 2021 codified the requirement to discuss critical accounting estimates, the rules also clarify that this discussion should supplement, and not duplicate, the description of accounting policies disclosed in the notes to the financial statements.

Practical Tip: Pick Up the Pen! Ask Your CEO or CFO to Draft an MD&A Overview

According to the 2003 SEC interpretive release, management should provide “early top-level involvement” in “identifying the key disclosure themes and items” to include in a company’s MD&A. These key themes should first appear in the “executive-level” overview. Although the content of an introduction or overview will depend on the circumstances of each particular company, the SEC suggests that a good overview will discuss:

  • Economic or industrywide factors relevant to the company;
  • How the company generates revenue, cash flow and net income;
  • The company’s lines of business, locations of operations and principal products and services in a way that does not duplicate the Business section of the Form 10-K; and
  • Material opportunities, challenges and risks, such as those presented by known material trends and uncertainties, on which the company’s executive officers are most focused for both the short and long term, as well as the actions they are taking to address these opportunities, challenges and risks.

Ask your CEO or CFO to sketch out a one-page narrative or outline addressing these factors in his or her own words, or to discuss them with the principal MD&A drafter, to provide a “through the eyes of management” starting point for the MD&A overview.


In the SEC’s continuing focus on the quality of MD&A disclosure, it has re-emphasized the need to identify and analyze material trends, demands, commitments, events and uncertainties that could impact a company’s liquidity, financial condition or operating results. This disclosure, the SEC believes, is critical to understanding a company’s reported financial information and the extent to which reported information is indicative of future results or financial condition. SEC regulations require that MD&A focus on material events and uncertainties known to management that could cause reported financial information not to be indicative of future operating results or future financial condition. A disclosure duty exists where a trend, demand, commitment, event or uncertainty is both:

  • Presently known to management; and
  • Reasonably likely to have a material effect on a company’s liquidity, financial condition or results of operations.

The “reasonably likely” threshold is higher than “possible” but lower than “more likely than not.” The SEC indicates that it expects disclosure of an identified trend, future event or uncertainty unless management concludes that either:

  • It is not reasonably likely that the trend, event or uncertainty will occur or come to fruition; or
  • The trend, event or uncertainty is not reasonably likely to have a material effect on the company’s liquidity, capital resources or results of operations.

Trap for the Unwary: Caterpillar’s Samba with MD&A

The year 1989 was a profitable one for the Brazilian subsidiary of Caterpillar Inc. It accounted for 23% of the earnings of the Peoria, Illinois, maker of heavy machinery engines. A number of nonoperating gains caused by hyperinflation and currency exchange rates contributed to the strong year.

In its 1989 Form 10-K, as in years past, Caterpillar presented its financial results on a consolidated basis, melding the Brazilian subsidiary with the rest of the company. Its MD&A did not discuss the extent to which Caterpillar’s 1989 earnings were derived from the subsidiary. Moreover, neither the Form 10-K nor Caterpillar’s Form 10-Q for the first quarter of 1990 discussed what seemed to be known risks faced by the Brazilian subsidiary arising from possible economic reforms in Brazil that could have had a material adverse effect on the subsidiary’s financial performance and the overall financial performance of Caterpillar.

When, in June 1990, Caterpillar announced that new economic policies in Brazil would hurt the company’s overall earnings, its stock price plummeted by 16%.

The SEC charged Caterpillar with disclosure violations in a proceeding that centered on the MD&A section of the company’s 1989 Form 10-K and first-quarter 1990 Form 10-Q. In the SEC’s interpretive release, which it still refers to today for MD&A guidance, the SEC described Caterpillar’s MD&A disclosure as deficient in that:

  • Caterpillar’s Form 10-K should have discussed the impact of the Brazilian subsidiary’s earnings on Caterpillar’s overall results of operations; and
  • Both the Form 10-K and the Form 10-Q should have discussed future uncertainties regarding the subsidiary’s operations, the possible risk of Caterpillar’s having materially lower earnings as a result of that risk, and, if practicable, the quantifiable impact of the risk.

Caterpillar’s experience reminds us that an MD&A that provides a view of the company “through the eyes of management” will:

  • Transparently describe the contributions of subsidiaries, divisions or sectors;
  • Disclose the risks, trends or uncertainties that may affect future financial performance, identifying them as they develop; and
  • Quantify, where possible, the potential consequences of these risks.


Incorporation by Reference

Most companies’ Form 10-Ks incorporate portions of the “glossy” annual report to shareholders and the proxy statement by reference, without repeating the incorporated information. For example, companies generally incorporate by reference from the proxy statement all compensation information and related person transactions regarding directors and officers, known as “Part III” information. (We describe this information in this chapter under “Annual Report on Form 10-K.”) This is permitted even though the proxy statement is filed later than the Form 10-K.

Incorporation by reference requires that:

  • All the incorporated information be included in a definitive proxy statement that involves the election of directors;
  • The company file its definitive proxy statement within 120 days after the end of the fiscal year covered by the Form 10-K; and
  • The Form 10-K specifically identify the incorporated material by page, paragraph, caption or otherwise.

The Form 10-K may also incorporate by reference the “glossy” annual report to shareholders. If so, the company must file the annual report with the SEC as an exhibit to the Form 10-K. (We discuss both the glossy annual report and the proxy statement in greater detail in Chapter 7.)

Risk Factors and the Safe Harbor

Most companies are required to include disclosure of risk factors in their Form 10-Ks. Risk factor disclosure involves a discussion of material circumstances, trends or issues that may affect the company’s business, prospects, future operating results and financial condition, making an investment in the company speculative or risky. The SEC discourages including risks that could apply generically to any company, and requires companies to organize the risk factor section with headings and subcaptions. Companies are also encouraged to make risk factor disclosures concise. If the risk factors are longer than 15 pages, a summary of no more than two pages must be provided. This risk factor disclosure requirement does not extend to smaller reporting companies, although these companies will want to consider including this disclosure for the reasons discussed below.

Although the SEC discourages companies from unnecessarily repeating the risk factors in their Form 10-Qs, companies filing Form 10-Qs will need to consider on a quarterly basis whether there have been any material changes from their Form 10-Ks. If a risk factor is updated in a Form 10-Q, the updated risk factor will need to be included in each subsequent Form 10-Q until the next Form 10-K is filed.

Even if not mandated to include risk factors, many issuers include risk factors in 1934 Act reports to take advantage of the safe harbor provided by Section 21E of the 1934 Act. Section 21E provides a public company with a safe harbor defense in securities litigation challenging a forward-looking statement made by the company. To fall within the safe harbor, the forward-looking statement must be identified as a forward- looking statement and be accompanied by meaningful cautionary language that, in the case of written statements, identifies important factors that could cause actual results to differ materially from those projected in the forward-looking statement. (We discuss and provide practical tips for using these safe harbors in Chapter 5.)

Periodic reports usually include forward-looking statements, particularly in the MD&A section where the SEC encourages disclosure of forward-looking information. Risk factors accompanying these forward-looking statements will provide the meaningful cautionary language that identifies important factors that could cause actual results to differ from projected results. In addition, the company can protect oral forward-looking statements under the safe harbor provisions of Section 21E of the 1934 Act by referring to the risk factors disclosed in the most recent Forms 10-K and 10-Q.

Form 10-K Exhibits

Some of the most valuable sources of information about a public company are the exhibits to its Form 10-K. Item 601 of Regulation S-K identifies the documents to be filed as exhibits. Companies generally incorporate by reference documents that they have previously filed as exhibits to other SEC filings. As mentioned previously, a filing that incorporates an exhibit by reference must include a hyperlink to the previously filed exhibit.

The most significant category of documents that must be filed as exhibits to Form 10-K is material contracts. All material contracts made outside the ordinary course of business must be filed as exhibits. If a contract was made in the ordinary course of business, it does not have to be filed unless it is material and falls within one of the following categories:

  • A contract with a director, officer or shareholder named in the report;
  • A contract on which the company is substantially dependent;
  • Any contract involving the acquisition or sale of property, plant or equipment for consideration exceeding 15% of the company’s fixed assets;
  • Any material lease; or
  • A management contract or compensatory plan for a director or executive officer that is not generally available to all employees.

Immaterial exhibits and schedules attached to any document required to be filed as an exhibit under Item 601 may be excluded from the exhibit filing. The document must include a list identifying the contents of the omitted exhibits and schedules. In addition, the company can redact or seek confidential treatment for certain reda under specific circumstances. (We discuss redaction and confidential treatment later in this chapter.)

Quarterly Reports on Form 10-Q

Public companies file a quarterly report on Form 10-Q after the end of each of their first three fiscal quarters. (We summarize the filing deadlines earlier in this chapter.) Companies that go public during a quarter must file a Form 10-Q that covers the entire quarter in which the 1933 Act registration statement becomes effective.

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Information Included in Form 10-Q

Form 10-Q generally includes:

  • Unaudited interim financial statements in compliance with Regulation S-X;
  • MD&A;
  • Qualitative and quantitative disclosure about market risks (smaller reporting companies are not required to provide this disclosure);
  • Management’s conclusions regarding the effectiveness of the company’s disclosure controls and procedures as of the end of the quarter; and
  • Any changes in the company’s internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

In addition, a company will disclose specific events that occurred during the quarter, including:

  • Material changes to the risk factors included in the Form 10-K; and
  • Material legal proceedings and material developments during the quarter in previously reported legal proceedings.

Signatures and Certifications

A duly authorized officer signs a Form 10-Q on behalf of the company, as does either its principal financial or chief accounting officer. Unlike the Form 10-K, the Form 10-Q does not require CEO or Board signatures. (We discuss requirements for the use of electronic signatures later in this chapter.)

Although the CEO does not necessarily sign the Form 10-Q, the CEO and CFO each sign Section 302 certifications and a Section 906 certification for each Form 10-Q.

Form 10-Q Exhibits

Item 601 of Regulation S-K identifies the documents that must be filed as exhibits to Form 10-Q. Companies may and generally do incorporate previously filed exhibits by reference.

Missed Form 8-K Filings

Form 10-Q must identify any information required to be disclosed in a Form 8-K during the quarter but not reported.

Current Reports on Form 8-K

Form 8-K is a current report filed between quarterly and annual reports to provide the public with information on recent material events. Form 8-K disclosure is mandatory if specified events occur. In addition, many companies make optional filings on Form 8-K to ensure maximum public disclosure of material developments. A duly authorized officer of the company signs the Form 8-K.

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Mandatory Filing

Appendix 2 contains a complete list and description of the items a company is required to report on Form 8-K. These items include:

  • Entry into or termination of, or material amendment to, material agreements;
  • Significant acquisitions or dispositions;
  • Specified financial information, including earnings releases, creation of direct financial obligations or off-balance sheet arrangements and events that accelerate or increase those obligations or arrangements, costs associated with exit and disposal activities and material impairments;
  • Information regarding the company’s securities and trading markets, including delisting notices or failure to satisfy listing standards, sales of unregistered securities and material modifications to rights of security holders;
  • Matters relating to accountants and financial statements, including changes in the independent auditor and restatements of financial statements;
  • Bankruptcy or receivership;
  • Information regarding corporate governance and management, including change of control of the company; departures or appointments of directors and executive officers; entry into, adoption of or material amendments or modifications to material compensation agreements; amendments to the company’s charter documents, amendments or waivers to the company’s code of ethics and suspension of trading under employee benefit plans; and
  • The results of matters submitted to a vote of the company’s shareholders.

Optional Filing

A company may elect to voluntarily report other material events under Item 8.01 of Form 8-K.

Regulation FD Disclosure

Regulation FD requires that when a public company discloses material nonpublic information to certain shareholders and investment professionals, it must also simultaneously make general public disclosure of that information. Regulation FD public disclosure requirements may be met by reporting the information under Item 8.01 or Item 7.01 of Form 8-K. (We discuss Regulation FD in detail in Chapter 5.)

Information provided under Item 7.01 (and Item 2.02) of Form 8-K is considered “furnished” rather than “filed.” As a result, this information will not be subject to liability under Section 18 of the 1934 Act and will not be incorporated by reference into shelf registration statements filed under the 1933 Act.

Form 8-K Exhibits

Companies file exhibits with Form 8-K to the extent required by Form 8-K or Item 601 of Regulation S-K.

Trap for the Unwary: Best Practice May Be to File Material Agreement as Exhibit to Form 8-K When Practicable

The SEC encourages, but does not require, companies to file a copy of the reported material definitive agreement as an exhibit to the Form 8-K. A company will file any agreement not filed as a Form 8-K exhibit as an exhibit to the company’s next periodic report or registration statement.

Because the Form 8-K disclosure must contain sufficient information not to be misleading and must not contain any material misstatements or omissions, your company should take steps to ensure that it discloses all material information concerning an agreement on Form 8-K. To ensure compliance with this requirement, many companies file agreements with Form 8-K, where practicable, to ensure that the disclosure is complete. However, if you seek confidential treatment of the agreement, you must submit your request for confidential treatment of sensitive information no later than the date on which you file the Form 8-K that includes the agreement.



Companies must file mandatory Form 8-Ks generally within four business days of the reported event and “promptly” file an optional report made pursuant to Item 8.01 after the triggering event. Regulation FD establishes timelines for filing a report made to satisfy Regulation FD requirements. (We discuss Regulation FD in detail in Chapter 5.)

Limited Safe Harbor from Rule 10b-5 Liability. Because several of the Form 8-K disclosure items require management to quickly assess the materiality of an event or to determine whether a disclosure obligation has been triggered, the SEC provides a limited safe harbor from claims under Section 10(b) of the 1934 Act and Rule 10b-5 under the 1934 Act for failure to timely file a Form 8-K. (We discuss Section 10(b) and Rule 10b-5 in Chapter 13.) The safe harbor applies only to these items of Form 8-K:

  • Entry into, material amendment to or termination of a material definitive agreement;
  • Creation of a direct financial obligation or an obligation under an off-balance sheet arrangement, and triggering events that accelerate or increase these obligations or arrangements;
  • Costs associated with exit and disposal activities;
  • Material impairments;
  • The company’s determination that previously issued financial statements should no longer be relied on due to an error; and
  • Entry into or adoption of, or material amendments or modifications to, material compensation arrangements, including material grants or awards made pursuant to the arrangements.

The safe harbor extends only until the due date of the next 1934 Act report for the period in which the Form 8-K was not timely filed. The safe harbor does not provide protection against, and the SEC may still bring, enforcement actions against the company under other 1934 Act rules for failure to timely file Form 8-Ks.

Failure to Timely File May Affect Form S-3 Eligibility. A company that fails to timely file a mandatory Form 8-K generally will lose its eligibility for a period of 12 months to use Form S-3, which is a streamlined registration statement form. (We discuss this registration statement in Chapter 12.) However, companies that fail to file timely reports on Form 8-K required solely by the Form 8-K items for which the limited safe harbor described above applies will not lose their eligibility to use Form S-3. A company must be current in its Form 8-K reports, and have filed the disclosure required by any of these Form 8-K items, on or before the date on which it files a Form S-3.

Practical Tip: Integrate Form 8-K Filing Requirements with Disclosure Control Mechanisms

To meet the challenges of real-time reporting on Form 8-K, management should work with your company’s Disclosure Practices Committee to monitor your company’s disclosure controls and procedures. They should consider whether to design and implement new controls and procedures to ensure that someone at your company identifies and evaluates information about events that may be reportable on Form 8-K, and does so in a timely way.

Here are some useful steps to help you assess and consider improvements to existing disclosure controls and procedures:

  • Identify officers and others to whom the Board has delegated authority to execute material agreements or otherwise take actions that trigger Form 8-K disclosure obligations. Consider limiting the number of people who have authority to act on your company’s behalf, and periodically remind this core group to be aware of when their actions can trigger a Form 8-K filing, and how the specific terms of an agreement can affect disclosure requirements.
  • Evaluate current procedures for monitoring companywide contracting and compensation activities and events relating to existing contracts and compensatory arrangements. If current monitoring does not occur continuously or at least daily, consider implementing more frequent monitoring.
  • Reconsider the size and composition of your company’s current Disclosure Practices Consider forming a smaller “rapid response” subcommittee for Form 8-K disclosure to improve response time.
  • Analyze current lines of communication from investor relations and each major function, including information security, to and from the Disclosure Practices Committee (or your company’s general counsel or other appropriate person who staffs the Committee). Do the Investor Relations, Finance and other key groups understand these lines of communication? Have you built sufficient redundancy into the system to ensure that information flows to and from the Disclosure Practices Committee, even if one or more of the persons in the line of communication are unavailable?
  • Evaluate existing procedures for identifying required disclosures for quarterly and annual reports. Consider whether additional procedures should be added to ensure that any missed Form 8-K disclosures are included in the Form 10-Q or 10-K.
  • Review your company’s current material agreements that have been filed as exhibits to reports on Form 10-K, 10-Q or 8-K. Are these all still material?


Practical Tip: Allow Plenty of Time for Preparation of Conflict Minerals Report on Form SD

In 2012, the SEC adopted the Conflict Minerals Disclosure Rule pursuant to the Dodd-Frank Act. This rule applies to a reporting company that uses conflict minerals that are necessary to the functionality or production of a product it manufactures or contracts to be manufactured. A company that used conflict minerals in the most recent calendar year must file a report on Form SD by May 31 of each year.

Form SD disclosure requirements vary depending on the circumstances for the particular company and product. The basic requirement is that a company perform a “reasonable country of origin” inquiry to determine whether any of the minerals originated in the Democratic Republic of the Congo or an adjoining country. Additional disclosure requirements apply if the company determines that any of its necessary conflict minerals originated in the Democratic Republic of the Congo or an adjoining country.

The reasonable country of origin inquiry and due diligence processes relating to supply chain source and chain of custody can be time and labor intensive. A company that will be subject to the Conflict Minerals Disclosure Rule should begin the inquiry and implement a compliance program well in advance of preparing its first Form SD report.

Following litigation over the constitutionality of the Form SD requirements, the SEC’s Division of Corporation Finance announced in 2017 that it would not take enforcement action against companies that do not satisfy the requirements under paragraph 1.01(c) of Form SD, including the detailed supply chain due diligence disclosure, Conflict Minerals Report and independent private sector audit.

Confidential Information: Redaction and Confidential Treatment Requests

The 1934 Act sometimes calls for the disclosure of information that a company wants to keep confidential, because disclosure may adversely affect the company’s business and financial position or because the information is otherwise personally sensitive. The process for redacting or obtaining confidential treatment depends on the type of information and where the information is located. Potential disclosure of confidential information typically arises with respect to exhibits required to be filed under Regulation S-K Item 601.

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Personally Sensitive Information

Personal or private information, such as bank account numbers or personal home addresses, may be redacted by the company without any other action required.

Material Contracts and Plans of Acquisition, Reorganization, Liquidation or Succession

If confidential information is located in a material contract being filed pursuant to Regulation S-K Item 601(b)(10), or in a plan of acquisition, reorganization, liquidation or succession being filed pursuant to Regulation S-K Item 601(b)(2), a company may redact such information without prior SEC approval if such redacted information is both customarily treated by the company as confidential and not material. The company must mark the exhibit index to indicate that certain identified information has been omitted, include a prominent statement on the first page of the redacted exhibit that certain information has been excluded for such reasons, and within the exhibit itself indicate by brackets where information is omitted.

The SEC can still request an unredacted copy of the exhibit as well as the materiality analysis conducted by the company to justify the company’s decision to redact the confidential information, and if it disagrees with the redaction, can request the company to amend its filing to include the updated exhibit. The tips that follow regarding redactions, including limiting the amount of information that is redacted and material the SEC generally does not consider to be confidential, also apply to redactions made to exhibits without prior SEC approval.

All Other Information

In all other cases, a company must make a confidential treatment request (CTR). The company submits a CTR application to the SEC on paper, not electronically, and includes a copy of the relevant exhibit that identifies its confidential portions. Simultaneously, the company files a redacted version of the exhibit electronically with the 1934 Act report. The SEC reviews and comments on the CTR application, sometimes requiring an amended application in response to its comments.

Steps to submitting a successful confidential treatment request include:

  • File It on Time. Any CTR must be made no later than the date the 1934 Act report is filed.
  • Find Your FOIA Exemption. To receive confidential treatment, information must fall within one of nine exemptions articulated in the Freedom of Information Act. Most companies rely on the exemption that covers trade secrets and commercial or financial information.
  • Be Reasonable. Generally redact only dollar amounts or formulas rather than entire sections of a contract. At times, when disclosing the existence of a section would be commercially harmful, it is appropriate to redact the full section.
  • State Your Case. Describe those aspects of the company’s business or the specific contract that will allow the SEC to evaluate the sensitivity and importance of the information.
  • Be Aware of Off-Limits Information. The SEC usually will not grant confidential treatment for information material to investors, nor will confidentiality be appropriate for Regulation S-K disclosure or any other applicable disclosure requirement.
  • Watch for Inadvertent Disclosure of Confidential Information. Once the confidential information becomes publicly available, even if inadvertently, the company will not be able to receive confidential treatment for the disclosed information.
  • Specify Duration for Confidential Treatment. Confidential treatment beyond the term of an agreement usually is inappropriate, although the company can file an additional CTR to extend the initial period.

SEC Review of 1934 Act Reports

Sarbanes-Oxley requires the SEC to review a company’s 1934 Act reports at least once every three years. The SEC may review a company’s 1934 Act reports more frequently, however, often as part of an initiative to monitor specific companies. At other times, the SEC uses review to address specific issues (e.g., disclosure of non-GAAP financial measures, results of operations, “critical accounting policies” and liquidity in MD&A or revenue recognition). The SEC may also review 1934 Act reports in connection with its review of a company’s 1933 Act registration statements.

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Any SEC review may generate a comment letter to the company. The company addresses the comments in a response letter to the SEC. Ultimately, the comment process could cause the company to amend the reviewed report.

Accelerated filers, large accelerated filers and well-known seasoned issuers (discussed in Chapter 12) must disclose in their Form 10-Ks written comments from the SEC in connection with a review of a 1934 Act report that:

  • The company believes are material; 
  • Were issued more than 180 days before the end of the fiscal year covered by the Form 10-K; and
  • Remain unresolved as of the date of the filing of the Form 10-K.

The disclosure must be sufficient to convey the substance of the comments. Companies may provide additional information, including their positions regarding any unresolved comments.

Practical Tip: Look to SEC Comment Letters for Disclosure Guidance. But Watch Out: Your Response Letters Are Public Too!

The SEC publicly releases SEC comment letters and company response letters on the SEC’s EDGAR website. Letters are released by the SEC no earlier than 20 business days after the review of the disclosure filing is complete.

Although the SEC notes that comment letters reflect only the SEC staff’s position on a particular filing, do not apply to other filings and are not the official expressions of the SEC, the availability of comment and response letters can be a valuable resource to your company’s disclosure team. Prior to making a filing, you will be able to review comments made on similar filings and potentially avoid issues encountered by other companies.

But remember, your response letters will be public too! Before submitting a response letter to the SEC, consider whether your letter includes confidential information that should be protected from public disclosure. If so, work with your counsel to develop an appropriate CTR for the portion of your response letter that contains confidential information.

Amending 1934 Act Reports

Amendments to Form 10-K, 10-Q and 8-K filings bear the letter “A” after the title of the form being amended (e.g., Form 10-Q/A). The amendment sets forth the complete text of the item that is being amended. For example, if Item 1 of Form 10-K (Business) is the only item that requires amendment, the filing need only include Item 1, but it must include the complete text of Item 1. Amendments are signed on behalf of the company by a duly authorized representative.

Trap for the Unwary: Include CEO and CFO Certifications with Amendments When Required

Section 302 certifications are required with amendments to Forms 10-K and 10-Q. You may omit the certification paragraph regarding the accuracy of the financial statements if no financials or other financial information is included with the amendment, and you may omit the paragraphs regarding disclosure controls and procedures and the evaluation of internal control over financial reporting if the amendment does not contain or amend disclosures regarding controls and procedures.

Section 906 certifications are required with an amendment to Form 10-K or 10-Q only if the amendment contains financial statements or other financial information.

Applying Plain English Rules to 1934 Act Disclosure

Historically, the SEC’s plain English rules applied only to prospectuses filed pursuant to the 1933 Act. However, the SEC encourages plain English drafting in all SEC filings, and has mandated it in 1934 Act risk factors and disclosures in 1934 Act reports regarding executive compensation, security ownership, related person transactions and corporate governance. As a result, many companies now use plain English throughout their 1934 Act documents. Companies should strongly consider converting their entire Form 10-K (and other periodic reports) to the plain English style.

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Drafting in Plain English

Draft a plain English document in a clear, concise and understandable manner. Design the text to be visually inviting and easy to read. The SEC provides these guidelines:

  • Present information clearly and concisely, using short sentences and bullet lists whenever possible;
  • Use descriptive headings and subheadings;
  • Avoid frequent reliance on defined terms and glossaries;
  • Avoid legal jargon, boilerplate language and highly technical business terminology;
  • Use the active voice and definite, concrete and everyday language; and
  • Use tabular presentations or bullet lists for complex material.

A highly accessible SEC guide to drafting plain English documents is “A Plain English Handbook: How to Create Clear SEC Disclosure Documents,” available on the SEC’s website at The Warren Buffett preface alone is a quick, amusing and useful read.

The EDGAR Filing System

Most documents filed with the SEC, including periodic reports on Forms 10-K, 10-Q and 8-K, must be filed electronically via the SEC’s Next-Generation EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system. Documents filed via EDGAR are available promptly on the SEC’s website.

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Most documents filed with the SEC, including periodic reports on Forms 10-K, 10-Q and 8-K, must be filed electronically via the SEC’s Next-Generation EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system. Documents filed via EDGAR are available promptly on the SEC’s website.

Companies can obtain the SEC’s software package and submit filings directly with the SEC or use an outside service provider, such as a financial printing company, to convert SEC filings to the EDGAR format and file the documents on the EDGAR system. Prior to making filings on EDGAR, a company must apply to the SEC for a unique identification number, known as a CIK (Central Index Key) code, and a confidential password to enable the company to log into, and be identified by, the EDGAR system.

Regulation S-T contains the rules and procedures for filing via EDGAR and supersedes many requirements in other SEC regulations and forms.

Signatures for Electronically Submitted SEC Filings

Rule 302(b) of Regulation S-T and the EDGAR Filer Manual set forth rules and procedures for including signatures with electronically submitted filings. In 2020, the SEC modernized these rules by allowing electronic signatures on the signature page or other document (which the SEC refers to as an “authentication document”) that adopts the signature appearing in typed form within the electronic filing, provided that (1) the signatory has previously signed (in wet ink) a document attesting to their agreement to the use of electronic signatures, and (2) the e-signature process used by the company meets four process requirements designed to ensure verification and security, including through authentication and nonrepudiation. Companies can also continue to rely on manually signed (i.e., “wet ink”) authentication documents. The following diagram summarizes the signature process.

public companies 6th ed chart


Liabilities Relating to Periodic Reporting

Public companies and their officers and directors face potential personal liability resulting from the failure to make required periodic reports or from making materially misleading statements in them. Companies and individuals can be subject to SEC enforcement actions or private civil actions, including class actions and derivative actions. (We discuss these liabilities in Chapter 13.)

Practical Tip: Join a Board but Consider Your Timing

Directors who join a Board shortly before the company files a 1934 Act report may be concerned about potential liability associated with the report, especially if they must sign a Form 10-K. Directors can take steps to minimize this liability and still meet their responsibilities:

  • If you are comfortable that you can assimilate the company’s business, schedule as many meetings with the company’s management and independent auditor as necessary. Sign the report only if you believe that you understand the company and the information in the report.
  • If there is not enough time to conduct a sufficient review, wait to join the Board until after the company files the report.
  • Join the Board but decline to sign the first Form 10-K report. (Directors are not required to sign a Form 10-Q, and only a majority of the members of the Board need sign the Form 10-K.)

Failing to comply with all securities laws requirements for periodic reporting may also cause an issuer to lose eligibility to use short-form 1933 Act registration statements. (We discuss these registration statements and their advantages in Chapter 12.)