Companies must disclose more information about their business deals and financial obligations starting Monday, when new Securities and Exchange Commission rules take effect.
The SEC rules shorten the deadline for companies to file public reports on several key areas of their business -- and expand the kinds of information that companies must share with investors.
Two years in the making, the rules cover what companies must disclose to the public in so called 8-K forms. The forms are designed to help investors learn more about significant events when they occur.
"It's an important step in getting the important information that a shareholder would want to know to them quickly," SEC Commissioner Cynthia A. Glassman said in an interview yesterday.
The new rules explicitly require companies to file an 8-K form with securities regulators when they enter into a "material definitive agreement" or amend or terminate a deal.
They also impose a duty on a company to report costs associated with exiting a line of business and with impairment of corporate assets.
Under the new rules, companies must promptly tell investors if they receive notice from a stock exchange that they have violated a listing rule or will be delisted from trading on an exchange.
Separately, corporate officials must tell the public when they determine they can no longer rely on previously issued financial statements or audit reports.
"They are intended to provide investors with better and faster disclosure of important corporate events," SEC staffers wrote in a final rule released earlier this year.
Robert S. Townsend, a corporate lawyer at Morrison & Foerster in San Francisco, said the changes are "revolutionary" in scope. He advises corporate clients to alert a broad group of their employees, so that everyone involved in negotiating deals is aware of the new reporting requirements.
The rules give companies four business days to report an important event after it occurs, down from five business days or 15 calendar days previously.
Gary M. Brown, a corporate lawyer at Baker, Donelson, Bearman, Caldwell & Berkowitz in Nashville, said many executives have not focused on the new rule because they are still digesting governance changes that Congress mandated in the landmark Sarbanes-Oxley Act.
But Brown warned that companies that do not follow the new SEC rules risk violating other regulations that force companies to have controls in place to ensure the adequacy of their public disclosures.