The SEC estimates that about 40% of registrants currently have risk factor disclosures that span more than 15 pages. Under the new rules, if the disclosure of the risk factor exceeds 15 pages, the registrant must prepare a series of concise, listed or numbered statements, not more than two pages long, summarizing the main factors that make an investment in the registrant or offer speculative or risky. The SEC acknowledged that this new rule may encourage some companies to streamline and reduce their disclosure of risk factors to avoid triggering the new summary disclosure requirement. ONE OF THE PURPOSES OF RISK FACTORS IS TO EDUCATE POTENTIAL INVESTORS ABOUT THE RISKS OF INVESTING IN A BUSINESS; However, risk factors also serve as a significant mitigating factor in a lawsuit against a company if the company and its securities do not perform as intended. Therefore, risk factors are not only required by the Securities and Exchange Commission (SEC), but also important for liability protection reasons. If an investor loses money on an investment but is properly warned of the potential risks of the investment, a court may, in certain circumstances, rule in favor of a defendant company, even if the share price drops significantly. In addition, securities laws provide a safe haven for forward-looking statements if the Company has provided reasonable information about the risks and uncertainties that may cause such forward-looking statements to be false. Regulation S-K item 105 currently requires registrants to discuss the “most significant” factors that make an investment in the registrant`s securities speculative or risky. The SEC encouraged registrants to avoid standard texts that apply to all companies and instead focus on the “most significant” risks specific to the company. The current rules require that each risk factor be listed under the captioning that describes the risk.

The Securities and Exchange Commission (SEC) continues its ongoing efforts to modernize and simplify disclosure requirements for publicly traded companies and recently passed amendments to certain requirements of Regulation S-K. These changes relate to business description (section 101), disclosure of legal process (section 103) and disclosure of risk factors (section 105), areas that have not been significantly changed in over 30 years. These changes are intended to improve the readability of disclosure while avoiding duplication and eliminating the disclosure of non-essential information. In light of these changes, publicly traded companies are encouraged to carefully review their current information, as material changes to existing information may be warranted in future filings and registration statements. These changes will take effect 30 days after they are published in the Federal Register and are expected to have the most immediate impact on companies with fiscal years ending September 30, 2020. As noted earlier, the scope of risk factor disclosure has increased significantly in recent years. Many companies have spent a lot of time designing and refining risk factor disclosures that adequately communicate potential risks and protect the company from potential liability. We wouldn`t recommend eliminating risk factor disclosures just to get below the 15-page limit, but a company approaching that limit should consider whether there are ways to streamline or refine existing information without compromising the quality of disclosure. In general, we recommend that companies focus on appropriately reorganizing and clarifying their existing risk factor information, rather than reducing them. For an example of a risk factor form that describes cybersecurity issues that may be included in a publicly traded company`s registration statement, see A major new requirement is the duration of risk factor disclosure. While the SEC has avoided imposing restrictions on sites, the amendments impose additional requirements on registrants if their disclosure of risk factors exceeds 15 pages. Motivated in part by attempts to reduce the potential liability of the registrant, the scope of corporate disclosure of risk factors has increased significantly in recent years.