Modernization of Regulation S-K Items 101, 103, and 105

Conformed to Federal Register version 
SECURITIES AND EXCHANGE COMMISSION 
17 CFR 229, 239, and 240 
[Release Nos. 33-10668; 34-86614; File No. S7-11-19]  
RIN 3235-AL78 
Modernization of Regulation S-K Items 101, 103, and 105  
AGENCY:  Securities and Exchange Commission. 
ACTION:  Proposed rule. 
SUMMARY:  The Securities and Exchange Commission (“Commission”) is proposing for 
public comment amendments to modernize the description of business, legal proceedings, and 
risk factor disclosures that registrants are required to make pursuant to Regulation S-K.  These 
disclosure items have not undergone significant revisions in over 30 years.  The proposed 
amendments are intended to update our rules to account for developments since their adoption or 
last amendment, to improve these disclosures for investors, and to simplify compliance efforts 
for registrants.  Specifically, the proposed amendments are intended to improve the readability of 
disclosure documents, as well as discourage repetition and disclosure of information that is not 
material.   
DATES:  Comments should be received on or before October 22, 2019. 
ADDRESSES: Comments may be submitted by any of the following methods: 
Electronic comments:   
• Use the Commission’s Internet comment form 
(https://www.sec.gov/rules/proposed.shtml); or  

2 
 
• Send an email to [email protected].  Please include File Number S7-11-19 on the 
subject line. 
Paper comments: 
 
• Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange 
Commission, 100 F Street NE, Washington, DC 20549-1090. 
All submissions should refer to File Number S7-11-19.  This file number should be 
included on the subject line if email is used.  To help us process and review your comments more 
efficiently, please use only one method.  We will post all comments on our internet website 
(https://www.sec.gov/rules/proposed.shtml).  Comments are also available for website viewing 
and printing in our Public Reference Room, 100 F Street NE, Washington, DC 20549 on official 
business days between the hours of 10:00 a.m. and 3:00 p.m.  All comments received will be 
posted without change.    Persons submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions.  You should submit only 
information that you wish to make available publicly. 
We or the staff may add studies, memoranda, or other substantive items to the comment 
file during this rulemaking.  A notification of the inclusion in the comment file of any such 
materials will be made available on our website.    To ensure direct electronic receipt of such 
notifications, sign up through the “Stay Connected” option at www.sec.gov to receive 
notifications by email. 
FOR FURTHER INFORMATION CONTACT:  Sandra Hunter Berkheimer or Elliot Staffin, 
Office of Rulemaking, at (202) 551-3430, in the Division of Corporation Finance, U.S. Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549. 

3 
 
SUPPLEMENTARY INFORMATION:  We are proposing to amend 17 CFR 229.101 (“Item 
101”), 17 CFR 229.103 (“Item 103”),  and 17 CFR 229.105 (“Item 105”) of 17 CFR 229.10 et 
seq. (“Regulation S-K”) under the Securities Act of 1933 (the “Securities Act”) and the 
Securities Exchange Act of 1934 (the “Exchange Act”). 
Table of Contents 
 INTRODUCTION AND BACKGROUND I.
 DESCRIPTION OF THE PROPOSED AMENDMENTS II.
A. General Development of Business (Item 101(a))  
B. Narrative Description of Business (Item 101(c))  
C. Legal Proceedings (Item 103)  
D. Risk Factors (Item 105)  
 
GENERAL REQUEST FOR COMMENTS III.
 ECONOMIC ANALYSIS IV.
A. Baseline and Affected Parties 
B. Potential Costs and Benefits 
C. Anticipated Effects on Efficiency, Competition, and Capital Formation 
D. Alternatives 
E. Request for Comments 
 
PAPERWORK REDUCTION ACT V.
A. Summary of the Collections of Information 
B. Summary of the Proposed Amendments’ Effects on the Collections of Information 
C. Incremental and Aggregate Burden and Cost Estimates for the Proposed 
Amendments 
 
REGULATORY FLEXIBILITY ACT CERTIFICATION VI.
 SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT VII.
 STATUTORY AUTHORITY AND TEXT OF PROPOSED RULE AND FORM VIII.
AMENDMENTS
 
 
INTRODUCTION AND BACKGROUND I. 
We are proposing amendments to modernize the description of business (Item 101), legal 

4 
 
proceedings (Item 103),  and risk factor (Item 105) disclosure requirements in Regulation S-K.  
We are proposing amendments to these items to improve these disclosures for investors and to 
simplify compliance for registrants.
1
 
Pursuant to Section 108 of the Jumpstart Our Business Startups Act (“JOBS Act”),
  2
 the 
Commission staff prepared the Report on Review of Disclosure Requirements in Regulation S-K 
(“S-K Study”),
3
 which recommended that the Commission conduct a comprehensive evaluation 
of its disclosure requirements.  Based on the S-K Study’s recommendation, the staff initiated an 
evaluation of the information our rules require registrants to disclose, how this information is 
presented, where this information is disclosed, and how we can better leverage technology as 
part of these efforts (collectively, the “Disclosure Effectiveness Initiative”).
4
  The overall 
objective of the Disclosure Effectiveness Initiative is to improve our disclosure regime for both 
investors and registrants. 
                                                 
1
  The proposed amendments are also consistent with and further promote the objectives of the Fixing America’s 
Surface Transportation Act (“FAST Act”).  See Pub. L. No. 114-94, 129 Stat. 1312 (Dec. 4, 2015) (requiring, 
among other things, that the SEC conduct a study, issue a report and issue a proposed rule on the modernization 
and simplification of Regulation S-K).  In the Report on Modernization and Simplification of Regulation S-K, 
the staff recommended that the Commission consider combining the description of material physical properties 
required in Item 102 with the description of business in Item 101(c).  See Report on Modernization and 
Simplification of Regulation S-K (Nov. 23, 2016), available at https://www.sec.gov/reportspubs/sec-fast-act-
report-2016.pdf.  The Commission considered the staff recommendation, but did not propose to combine Item 
102 with Item 101.  See FAST Act Modernization and Simplification of Regulation S-K, Release No. 33-10425 
((Oct. 11, 2017) [82 FR 50988 (Nov. 2, 2017)].  Instead, the Commission adopted amendments to Item 102 to 
emphasize the materiality standard applicable to that disclosure, while preserving the industry-specific 
instructions to that Item.  See FAST Act Modernization and Simplification of Regulation S-K, Release No. 33-
10618 (Mar. 20, 2019) [84 FR 12674 (April 2, 2019 )] (“FAST Act Adopting Release”).  We believe that, in 
light of our proposed amendments to Item 101, combining the two items would not improve registrants’ 
business disclosure or simplify compliance. 
2
  Pub. L. No. 112-106, Sec. 108, 126 Stat. 306 (2012).  Section 108 of the JOBS Act required the Commission to 
conduct a review of Regulation S-K to determine how such requirements can be updated to modernize and 
simplify the registration process for emerging growth companies.   
3
  See Report on Review of Disclosure Requirements in Regulation S-K (Dec. 2013), available at 
https://www.sec.gov/news/studies/2013/reg-sk  -disclosure-requirements-review.pdf (“S-K Study”).   
4
  See SEC Spotlight on Disclosure Effectiveness, available at https://www.sec.gov/spotlight/disclosure-
effectiveness.shtml.  

5 
 
In connection with the S-K Study and the launch of the Disclosure Effectiveness 
Initiative, the Commission staff received public input on how to improve registrant disclosures.
5
  
In a separate Concept Release issued in 2016,
6
 the Commission staff revisited the business and 
financial disclosure requirements in Regulation S-K and requested public comment on whether 
they provide the information that investors need to make informed investment and voting 
decisions, and whether any of our rules have become outdated or unnecessary. 
In developing the proposed amendments, we considered input from comment letters we 
received in response to these disclosure modernization efforts.
7
  We also took into account the 
staff’s experience with Regulation S-K arising from the Division of Corporation Finance’s 
disclosure review program and changes in the regulatory and business landscape since the 
adoption of Regulation S-K. 
Regulation S-K was adopted in 1977 to foster uniform and integrated disclosure for 
registration statements under both the Securities Act and the Exchange Act, and other Exchange 
Act filings, including periodic and current reports.
8
  In 1982, the Commission expanded and 
                                                 
5
  In connection with the S-K Study, we received public comments on regulatory initiatives to be undertaken in 
response to the JOBS Act.  See Comments on SEC Regulatory Initiatives Under the JOBS Act: Title I – Review 
of Regulation S-K, available at http://www.sec.gov/comments/jobs-title-i/reviewreg-sk/reviewreg-sk.shtml.  To 
facilitate public input on the Disclosure Effectiveness Initiative, members of the public were invited to submit 
comments.  See Request for Public Comment, available at http://www.sec.gov/spotlight/disclosure-
effectiveness.shtml.  Public comments received to date on the topic of Disclosure Effectiveness are available on 
our website.  See Comments on Disclosure Effectiveness, available at 
https://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness.shtml.  We refer to these letters 
throughout as “Disclosure Effectiveness” letters. 
6
  See Business and Financial Disclosure Required by Regulation S-K, Release No. 33-10064 (Apr. 13, 2016) [81 
FR 23915 (Apr. 22, 2016)] (“Concept Release”). 
7
  Unless otherwise indicated, comments cited in this release are to the public comments on the Concept Release, 
supra note 6, which are available at https://www.sec.gov/comments/s7-06-16/s70616.htm. 
8
  The Commission adopted the initial version of Regulation S-K following issuance of the report by the Advisory 
Committee on Corporate Disclosure led by former Commissioner A. A. Sommer, Jr., which recommended 
adoption of a single integrated disclosure system.  See Report of the Advisory Committee on Corporate 
Disclosure to the Securities and Exchange Commission, Cmte. Print 95-29, House Cmte. On Interstate and 
Foreign Commerce, 95th Cong., 1st. Sess (Nov. 3, 1977) (“Report of the Advisory Committee”), available at 

6 
 
reorganized Regulation S-K to be the central repository for its non-financial statement disclosure 
requirements.
9
  The Commission’s goals in adopting integrated disclosure were to revise or 
eliminate overlapping or unnecessary disclosure requirements wherever possible, thereby 
reducing burdens on registrants and enhancing readability without affecting the provision of 
information material to an investment decision.
10
 
The Commission adopted line-item requirements in Regulation S-K to elicit specific 
disclosure within broad categories of information material to an investment decision.  Some of 
these requirements provide registrants with the flexibility to determine the disclosure that is 
material to an investment decision.
11
  These disclosure requirements are often referred to as 
“principles-based” because they articulate a disclosure concept rather than a specific line-item 
requirement.
12
  Principles-based rules rely on a registrant’s management to evaluate the 
significance of information in the context of the registrant’s overall business and financial 
                                                                                                                                                             
http://3197d6d14b5f19f2f440-
5e13d29c4c016cf96cbbfd197c579b45.r81.cf1.rackcdn.com/collection/papers/1970/1977_1103_AdvisoryDisclo
sure.pdf.  This version of Regulation S-K included only two disclosure requirements—a description of business 
and a description of properties.  See Concept Release, supra note 6, and accompanying text. 
9
  See Adoption of Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16, 
1982)] (“1982 Integrated Disclosure Adopting Release”).   
10
  See id. 
11
     On several occasions, the Commission has reiterated that its requirements seek disclosure of information 
material to an investment decision.  See, e.g., Commission Guidance Regarding Disclosure Related to Climate 
Change, Release No. 33-9106 (Feb. 8, 2010) [75 FR 6290 (Feb. 8, 2010)] (“Climate Change Release”) at 6292-
6293 (reiterating that information is material if there is a substantial likelihood that a reasonable investor would 
consider it important in deciding how to vote or make an investment decision, or, put another way, if the 
information would alter the total mix of available information); Statement of the Commission Regarding 
Disclosure of Year 2000 Issues and Consequences by Public Companies, Investment Advisers, Investment 
Companies, and Municipal Securities Issuers, Release No. 33-7558 (July 29, 1998) [63 FR 41394 (Aug. 4, 
1998)] at 41395 (stating that our disclosure framework requires companies to disclose material information that 
enables investors to make informed investment decisions).  
12
  See Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 FR 
53157 (Sept. 8, 2006)] (“As described in the Proposing Release and as adopted, the Compensation Discussion 
and Analysis requirement is principles-based, in that it identifies the disclosure concept and provides several 
illustrative examples.”). 

7 
 
circumstances and to determine whether disclosure is necessary.
13
  As the Commission stated in 
the Concept Release, emphasizing principles-based disclosure may allow a registrant to more 
effectively tailor its disclosure to provide the information about its specific business and 
financial condition that is material to an investment decision and in turn may reduce the amount 
of disclosure that may be irrelevant, outdated or immaterial.
14
  
In contrast, some line-item requirements in Regulation S-K employ bright-line, 
quantitative thresholds to specify when disclosure is required, or require all registrants to 
disclose the same type of information.  These requirements are sometimes referred to as 
“prescriptive” disclosure requirements because they do not rely on management’s judgment to 
determine when disclosure is required.  The benefits of prescriptive disclosure requirements can 
include comparability, consistency,  and ease in determining when information must be 
disclosed.
15
   
The Concept Release sought input on whether our disclosure requirements should be 
more principles-based, prescriptive, or a combination of both.  Many commenters supported a 
more principles-based approach
16
 while other commenters supported some combination of both 
                                                 
13
    See Report of the Advisory Committee, supra note 8 (“Although the initial materiality determination is 
management’s, this judgment is, of course, subject to challenge or question by the Commission or in the 
courts.”).   
14
  See Concept Release, supra note 6. 
15
    See id.  For a discussion of the potential economic effects of switching from a prescriptive to a more principles-
based disclosure requirement, including a potential loss of comparability, see infra Sections IV.B.1 and 2 and 
IV.D.  
16
  See letters from R.G. Associates, Inc. (July 6, 2016) (“RGA”), American Bankers Association (July 15, 2016), 
Deloitte & Touche LLP (July 15, 2016) (“Deloitte”), New York State Society of Certified Public Accountants 
(July 19, 2016) (“NYSSCPA”), U.S. Chamber of Commerce (July 20, 2016) (“Chamber”), BDO USA LLP 
(July 20, 2016) (“BDO”), Corporate Governance Coalition for Investor Value (July 20, 2016)  (“CGCIV”), 
International Integrated Reporting Council (July 20, 2016) (“IIRC”), Railpen Investments (July 21, 2016) 
(“Railpen”), National Association of Manufacturers (July 21, 2016) (“NAM”), American Chemistry Council 
(July 19, 2016) (“ACC”), The American Petroleum Institute (July 21, 2018) (“API”), Business Roundtable (July 
21, 2016), UnitedHealth Group, Inc. (July 21, 2016) (“United Health”), Center for Audit Quality (July 21, 
2016) (“CAQ”), Securities Industry and Financial Markets Association (July 21, 2016) (“SIFMA”), Ernst & 

8 
 
principles-based and prescriptive rules.
17
          
We are proposing amendments to Items 101, 103, and 105
18
 in light of the many changes 
that have occurred in our capital markets and the domestic and global economy in the more than 
30 years since their adoption, including changes in the mix of businesses that participate in our 
public markets, changes in the way businesses operate, which may affect the relevance of current 
disclosure requirements, changes in technology (in particular the availability of information), and 
changes such as inflation that have occurred simply with the passage of time.
19
  For example, 
                                                                                                                                                             
Young LLP (July 21, 2016) (“E&Y”), PNC Financial Services Group (July 21, 2016) (“PNC”), Edison Electric 
Institute and American Gas Association (July 21, 2016) (“EEI and AGA”), Grant Thornton LLP (July 21, 2016) 
(“Grant”), KPMG LLP (July 21, 2016) (“KPMG”), PricewaterhouseCoopers LLP (July 21, 2016) (“PWC”), 
Cornerstone Capital Inc. (July 21, 2016) (“Cornerstone”), Crowe Horwath LLP (July 21, 2016) (“Crowe”), 
America Gas Association (July 21, 2016) (“AGA”), Prologis, Inc. (July 21, 2016) (“Prologis”), National 
Association of Real Estate Investment Trusts (July 21, 2016) (“NAREIT”), Allstate Insurance Company (July 
21, 2016) (“Allstate”), Davis Polk & Wardwell LLP (July 22, 2016) (“Davis”), Chevron Corporation (July 22, 
2016) (“Chevron”), Fenwick West LLP (Aug. 1, 2016) (“Fenwick”), Reardon Firm (Aug. 3, 2016) (“Reardon”), 
National Investor Relations Institute (Aug. 4, 2016) (“NIRI”), Sullivan & Cromwell LLP (Aug. 9, 2016), Exxon 
Mobil Corporation (Aug. 9, 2016), FedEx Corporation (July 21, 2016) (“FedEx”), Institute of Management 
Accountants (July 29, 2016), Shearman & Sterling LLP (Aug. 31, 2016) (“Shearman”), Nasdaq, Inc. (Sept. 16, 
2016) (“Nasdaq”), Northrop Grumman Corporation (Sept. 27, 2016), General Motors Company (Sept. 30, 
2016) (“General Motors”) and Financial Executives International (Oct. 3, 2016) (“Financial Executives 
International”). 
17
  See letters from Council of Institutional Investors (July 8, 2016) (“CII”), Railpen, New York State Comptroller 
(July 21, 2016) (“NYSC”), California State Teachers’ Retirement System (July 21, 2016) (“CalSTRS”), 
Pension Investment Association of Canada (July 17, 2016), Medical Benefits Trust (July 15, 2016) (“Medical 
Benefits Trust”), Principles for Responsible Investment (July 19, 2016) (“PRI”), Legal & General Investment 
Management (July 20, 2016) (“LGIM”), Walden Asset Management (July 19, 2016) (“Walden”), SEC Investor 
Advisory Committee (June 15, 2016) (“IAC”), AFLAC (July 19, 2016) (“AFLAC”), Domini Social 
Investments LLC (July 21, 2016) (“Domini Social”), NYC Comptroller (July 21, 2016) (“NYC Comptroller”), 
AFL-CIO (July 21, 2016) (“AFL-CIO”), California Public Employees’ Retirement System (July 21, 2016) 
(“CalPERS”), British Columbia Investment Management Corporation (July 21, 2016), Stephen Percoco (July 
24, 2016) (“S. Percoco”), Americans for Financial Reform (Aug. 10, 2016) (“Americans for Financial Reform”) 
and CFA Institute (Oct. 6, 2016) (“CFA Institute”).  Four commenters supported a combination that emphasized 
a principles-based approach (Walden, AFLAC, Ball Corporation (July 19, 2016) (“Ball Corporation”) and S. 
Percoco) and seven commenters supported a combination that emphasized a prescriptive approach (IAC, NYC 
Comptroller, American Federation of State, County and Municipal Employees (July 21, 2016) (“AFSCME”), 
Maryland State Bar Association (July 21, 2016) (“Maryland Bar Securities Committee”), AFL-CIO, Americans 
for Financial Reform and CFA Institute). 
18
   The Commission recently rescinded Item 503(c) of Regulation S-K and replaced it with new Item 105 of 
Regulation S-K.  See FAST Act Adopting Release, supra note 1. 
19
   See infra note 279 (noting that while Items 101, 103, and 105 have not undergone significant revisions in over 30 
years, many characteristics of the registrants have changed substantially over this time period).      

9 
 
Item 101 mandates certain disclosures that may be outdated while Item 103 includes a dollar 
threshold for proceedings related to environmental protection laws that was set in 1982.
20
  
Further, numerous commenters cited the risk factor disclosure requirements as needing 
improvement.
21
  We believe that modernizing these disclosure items would result in improved 
disclosure, tailored to reflect registrants’ particular circumstances, and reduce disclosure costs 
and burdens. 
For each of the disclosure requirements addressed in this release, we considered the 
merits and drawbacks of pursuing a principles-based versus prescriptive approach.  We also 
considered each requirement as a component of a broader framework that will achieve the 
disclosure objectives of the Securities Act and the Exchange Act in the most effective and 
efficient manner.  As discussed in greater detail in Section II below, we propose to revise Items 
101(a) (description of the general development of the business), 101(c) (narrative description of 
the business), and 105 (risk factors) to emphasize a principles-based approach because the 
current disclosure requirements may not reflect what is material to every business, and, as past 
developments have demonstrated, disclosure requirements, and in particular prescriptive 
disclosure requirements, can become outdated in these areas.  We believe this approach w ould 
elicit more relevant disclosures about these items.  In contrast, we are proposing a more 
prescriptive approach for Item 103 because that requirement depends less on the specific 
characteristics of individual registrants. 
                                                 
20
  See id. 
21
  See, e.g., letters from CAQ, AFLAC, Chamber, FedEx, CGCIV, NAM, ACC, SIFMA, E&Y, EEI and AGA, 
Wilson Sonsini Goodrich & Rosati (July 21, 2016) (“Wilson Sonsini”), NAREIT, Davis, Fenwick, NIRI, 
Shearman, PWC, General Motors, and Financial Executives International. 

10 
 
Our proposed amendments would:
22
 
• Revise Item 101(a) to be largely principles-based, requiring: 
o Disclosure of information material
23
 to an understanding of the general 
development of the business and eliminating a prescribed timeframe for 
this disclosure; and   
o In filings made after a registrant’s initial filing, only an update of the 
general development of the business with a focus on material 
developments in the reporting period with a hyperlink to the registrant’s 
most recent filing (e.g., initial registration statement or more recent filing 
if one exists) that, together with the update, would contain the full 
discussion of the general development of the registrant’s business.  
• Revise Item 101(c) to: 
o Clarify and expand its principles-based approach, with disclosure topics 
drawn from a subset of the topics currently contained in Item 101(c); 
o Include, as a disclosure topic, human capital resources, including any 
human capital measures or objectives that management focuses on in 
                                                 
22
     We are also proposing amendments to Item 101(h) of Regulation S-K [17 CFR 229.101(h)], which permits a 
smaller reporting company to fulfill its disclosure obligations under Item 101, including with respect to its 
business development, by providing the disclosure specified under paragraph (h).  “Smaller reporting company” 
is defined in 17 CFR 229.10(f) as an issuer that is not an investment company, an asset-backed issuer (as 
defined in 17 CFR 229.1101), or a majority-owned subsidiary of a parent that is not a smaller reporting 
company and that: (i) had a public float of less than $250 million; or (ii) had annual revenues of less than $100 
million and either: (A) no public float; or (B) a public float of less than $700 million.  Business development 
companies, which are a type of investment company, are not eligible to be smaller reporting companies.  See, 
e.g., Smaller Reporting Company Regulatory Relief and Simplification, Release No. 33-8819 ((July 5, 2007) [72 
FR 39670 (July 19, 2007)], at 39674. 
23
   Information is material if there is a substantial likelihood that a reasonable investor would consider the 
information important in deciding how to vote or make an investment decision.  See supra note 14 and 
accompanying text.    

11 
 
managing the business, to the extent such disclosures would be material to 
an understanding of the registrant’s business; and  
o Refocus the regulatory compliance requirement by including material 
government regulations, not just environmental laws, as a topic. 
• Revise Item 103 to: 
o Expressly state that the required information may be provided by 
including hyperlinks or cross-references to legal proceedings disclosure 
located elsewhere in the document in an effort to encourage registrants to 
avoid duplicative disclosure; and 
o Revise the $100,000 threshold for disclosure of environmental 
proceedings to which the government is a party to $300,000 to adjust for 
inflation. 
• Revise Item 105 to: 
o Require summary risk factor disclosure if the risk factor section exceeds 
15 pages; 
o Refine the principles-based approach of Item 105 by changing the 
disclosure standard from the “most significant” factors to the “material” 
factors; and  
o Require risk factors to be organized under relevant headings, with any risk 
factors that may generally apply to an investment in securities disclosed at 
the end of the risk factor section under a separate caption.
24
 
                                                 
24
   The proposed amendments to Items 101 and 103 will affect only domestic registrants and “foreign private 
issuers” that have elected to file on domestic forms.  This is because Regulation S-K does not apply to foreign 
private issuers unless a form reserved for foreign private issuers (such as Securities Act Form F-1, F-3, or F-4) 

12 
 
We welcome feedback and encourage interested parties to submit comments on any or all 
aspects of the proposed amendments.  When commenting, it would be most helpful if you 
include the reasoning behind your position or recommendation. 
DESCRIPTION OF THE PROPOSED AMENDMENTS II. 
A. General Development of Business (Item 101(a)) 
Item 101(a) of Regulation S-K requires a description of the general development of the 
business of the registrant during the past five years, or such shorter period as the registrant may 
have been engaged in business.
25
  In describing the general development of the business, Item 
101(a)(1) requires disclosure of the following:  
• The year in which the registrant was organized and its form of organization;  
• The nature and results of any bankruptcy, receivership or similar proceedings with 
respect to the registrant or any of its significant subsidiaries;  
• The nature and results of any other material reclassification, merger or 
consolidation of the registrant or any of its significant subsidiaries;  
• The acquisition or disposition of any material amount of assets otherwise than in 
the ordinary course of business; and  
• Any material changes in the mode of conducting the business.
26
 
                                                                                                                                                             
specifically refers to Regulation S-K.  Instead of Items 101 and 103, the foreign private issuer forms refer to 
Part I of Form 20-F.  See, e.g., Item 4.a. of Form F-1.  In contrast, the proposed amendment to Item 105 will 
affect both domestic and foreign registrants because Forms F-1, F-3, and F-4, like their domestic counterparts, 
all refer to that Item.  See, e.g., Item 3 of Form F-1.  A foreign private issuer is any foreign issuer other than a 
foreign government, except for an issuer that (1) has more than 50% of its outstanding voting securities held of 
record by U.S. residents; and (2) any of the following: (i) a majority of its officers and directors are citizens or 
residents of the United States; (ii) more than 50% of its assets are located in the United States; or (iii) its 
business is principally administered in the United States.  17 CFR 230.405.  See also 17 CFR 240.3b-4(c). 
25
   17 CFR 229.101(a).  Item 101(a) states that information shall be disclosed for earlier periods if material to an 
understanding of the general development of the business.   
26
     17 CFR 229.101(a). 

13 
 
The Concept Release solicited input on whether the disclosure provided under this Item 
continues to be useful and how this Item might be improved.
27
  A number of commenters 
recommended eliminating or streamlining the requirements in Item 101(a).
28
  Several of these 
commenters recommended limiting Item 101(a) disclosure to material developments,
29
 and a few 
commenters supported executive summaries and layering techniques for the business section.
30
   
In light of the feedback received, we are proposing amendments to Item 101(a)(1) that 
would provide more flexibility to tailor disclosures to the unique circumstances of each 
registrant, which in turn could result in improved disclosures for investors.  In addition, for 
filings other than initial registration statements, we are proposing to require only material 
updates to this disclosure.   
1. Eliminate Prescribed Timeframe 
 
Item 101(a) requires a description of the general development of the registrant’s business 
during the past five years, or such shorter period as the registrant may have engaged in 
business.
31
  A requirement to provide a brief outline of the general development of the business 
for the preceding five years was included in the earliest form requirements for registration 
statements and annual reports,
32
 and the first version of Regulation S-K adopted in 1977 included 
                                                 
27
  See Concept Release, supra note 6, at 23932. 
28
  See letters from Allstate, Chamber, FedEx, CGCIV, EEI and AGA, Fenwick, NAREIT, NIRI, NYSSCPA, 
PNC, SIFMA, Davis, General Motors, and Financial Executives International.  
29
  See letters from NAREIT, PNC, SIFMA, and Fenwick. 
30
  See letters from Deloitte and CAQ. 
31
     17 CFR 229.101(a). 
32
  See, e.g., Item 6 of Form A-2 adopted in 1935, which required registrants to outline briefly “the general 
development of the business for the preceding five years.”  See Release No. 33-276 (Jan. 14, 1935) [not 
published in the Federal Register].   Additionally, Item 5 of Form A-1, adopted in 1933, required registrants to 
briefly describe the length of time the registrant had been engaged in its business.  See Release No. 33-5 (July 6, 
1933) [not published in the Federal Register].   See also S-K Study, supra note 3 at 32, n. 88. 

14 
 
a requirement to describe the development of the registrant’s business during the prior five years, 
or such shorter period as the registrant may have been in business.
33
 
The Concept Release solicited comments on whether the current five-year timeframe for 
this disclosure is appropriate, or whether a shorter or longer timeframe should be considered.
34
  
Several commenters recommended reducing the five-year timeframe for disclosure to a two- or 
three-year timeframe, or permitting well-established companies to provide the information 
through other means (such as a filer information page on the company’s website) with updates 
only required every three years or more frequently if there has been a substantial change.
35
  One 
of these commenters suggested linking the timeframe to the two years presented in the financial 
statements to allow users to focus on material events in the current period.
36
  Some of these 
commenters noted that this information does not change significantly from year to year and 
indicated that repeating these disclosures each year, especially for well-established companies, 
provides limited value to investors and may potentially obscure or distract from more important 
information included in the document.
37
 
We do not think it is necessary to prescribe a timeframe for which registrants should 
provide disclosure regarding the general development of their business.  The currently required 
five-year timeframe may not elicit the most relevant disclosure for every registrant.  Some 
                                                 
33
    See Adoption of Disclosure Regulation and Amendments of Disclosure Forms and Rules, Release No. 33-5893 
(Dec. 23, 1977) [42 FR 65554 (Dec. 30, 1977)]. 
34
  See Concept Release, supra note 6. 
 
35
    See letters from Allstate, NYSSCPA, and EEI and AGA.  
36
  See letter from Allstate.  
37
     See letters from EEI and AGA. 

15 
 
registrants may prefer to describe the development of their business over a longer period in order 
to provide the information that may be material to an investment decision, while others may 
conclude that the material aspects of their business development can be described over a shorter 
timeframe.  We are proposing to revise Item 101(a) to eliminate the five-year disclosure 
timeframe and require registrants to focus on the information material to an understanding of the 
development of their business, irrespective of a specific timeframe.  For similar reasons, we are 
also proposing to revise Item 101(h) to eliminate the provision that currently requires smaller 
reporting companies to describe the development of their business during the last three years.
38
  
We believe that these proposed revisions w ould result in disclosure of information that is 
material to investors’ understanding of the development of a registrant’s business while reducing 
outdated and irrelevant disclosure.   
2. Require Only Updated Disclosure in Subsequent Filings 
 
Currently registrants are required to provide disclosure regarding the general 
development of the business in registration statements and annual reports.
39
  The Concept 
Release sought comment on whether to allow registrants to omit this disclosure from filings 
other than the initial Securities or Exchange Act registration statement filed by the registrant and 
instead disclose only material changes in subsequent reports.
40
   
Several commenters recommended revising the requirement to distinguish between new 
and established registrants, stating that much of the disclosure required under this Item is 
                                                 
38
   We are proposing only to eliminate the required timeframe in Item 101(h).  We are, however, proposing to retain 
the requirement that if a smaller reporting company has not been in business for three years, it must provide the 
same information for its predecessors if there are any.   
39
  See 17 CFR 229.101(a). 
40
  See Concept Release, supra note 6. 

16 
 
redundant for registrants already subject to the reporting requirements.
41
  Many of these 
commenters supported limiting the full disclosure required by Item 101(a) to the initial filing and 
only requiring disclosure of material changes in subsequent filings,
42
 with a few of these 
commenters supporting the use of cross-references or hyperlinks to either the prior full 
disclosure or the relevant Form 8-K
43
 reports of material developments.
44
  A few commenters 
opposed limiting the full disclosure required by Items 101(a) and 101(c) to initial filings with 
follow-up disclosure of material changes in subsequent filings based on the belief that such a 
revision would require investors to search through multiple filings in a time-consuming attempt 
to understand the current state of a registrant’s business development and operations.
45
   
We propose to retain the requirement for registrants to describe the general development 
of the business in initial registration statements under the Securities Act and Exchange Act.
46
  
For filings subsequent to a registrant’s initial registration statement, we propose revising Item 
101(a)(1) to require an update of this disclosure, with a focus on material developments, if any, 
in the reporting period, including if the business strategy has changed.
47
  We also propose to 
                                                 
41
  See letters from Chamber, FedEx, CGCIV, EEI and AGA, PNC, and SIFMA. 
42
  See letters from SIFMA, PNC, Allstate, and Fenwick. 
43
     17 CFR 249.308. 
44
  See letters from SIFMA and PNC. 
45
  See letter from Maryland Bar Securities Committee; see also letter from RGA (stating that it is not always 
possible to fully understand a registrant’s business if its business development must be ascertained from a 
variety of sources). 
46
     Although, as discussed below, we propose to amend Item 101(a)(1), we are retaining Item 101(a)(2) and 
redesignating it as Item 101(a)(3). 
47
     Registrants are currently permitted to provide Item 101(a) disclosure by incorporating by reference some or all 
of the required disclosure from a previous filing pursuant to Securities Act Rule 411 (17 CFR 230.411) or 
Exchange Act Rule 12b-23 (17 CFR 240.12b-23).  Therefore, our proposal to require only an update of the Item 
101(a)(1) disclosure in a filing made subsequent to a registrant’s initial registration statement is a clarification 
of our existing rules rather than a substantive change. 

17 
 
require that, pursuant to § 230.411 or § 240.12b-23, a registrant incorporate by reference, and 
include an active hyperlink
48
 to, the most recently filed disclosure that, together with the update, 
would present a full discussion of the general development of its business.
49
  Under this 
approach,  a reader would have access to a full discussion by reviewing the updated disclosure 
and one hyperlinked disclosure.
50
  As noted by one commenter, registrants often repeat 
information from year-to-year in annual reports on Form 10-K,
51
 with this disclosure changing 
very little from filing to filing.
52
  This commenter also observed that there is no need for 
registrants to include this disclosure in both registration statements and annual reports as 
investors can easily access information about the general development of business through 
company websites or the Commission’s EDGAR system, which was not the case when 
Regulation S-K was first adopted.
53
  Because repetitive information may obscure more important 
information, we believe the proposed amendments would help focus investor attention on 
material developments in the reporting period.  By also requiring that a registrant use one 
hyperlink to connect the updated disclosure with the previous disclosure,  which together would 
result in a full discussion of its general business development, the amendment as proposed would 
help limit any burdensome effect on investors caused by this discussion being located in more 
                                                 
48
     The SEC Investor Advisory Committee has recommended the use of hyperlinks to reduce redundant disclosure 
in SEC filings.  See letter from IAC.   
49
     The Commission recently revised Rules 411 and 12b-23 to require the inclusion of an active hyperlink to 
information incorporated into a registration statement or report by reference if such information is publicly 
available on
 the Commission’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”).  See 
FAST Act Adopting Release, supra note 1 at 12694-12695. 
50
     Alternatively, a registrant may elect to provide a complete discussion of its business development, including  
material updates, in which case no hyperlink would be required.  
51
     17 CFR 249.310. 
52
  See letter from PNC. 
53
  See id. 

18 
 
than one document.
54
 
3. Include Material Changes to Business Strategy as Potential Disclosure 
Topic 
 
We are proposing to amend Item 101(a)(1) to be more principles-based by providing a 
non-exclusive list of the types of information that a registrant may need to disclose, and by 
requiring disclosure of a topic only to the extent such information is material to an understanding 
of the general development of a registrant’s business.
55
  We believe that such an approach would 
elicit material disclosure for investors while also providing the flexibility to tailor the disclosure 
to reflect the circumstances of each registrant.   
Three of the four matters that we are proposing to list as disclosure topics are currently 
covered in Item 101(a)(1): 
• Material bankruptcy, receivership, or any similar proceeding;  
• The nature and effects of any material reclassification, merger or consolidation of 
the registrant or any of its significant subsidiaries; and 
• The acquisition or disposition of any material amount of assets otherwise than in 
the ordinary course of business.   
We are also proposing to include as a listed disclosure topic, to the extent material to an 
understanding of the registrant’s business, transactions and events that affect or may affect the 
company’s operations, including material changes to a registrant’s previously disclosed business 
                                                 
54
     For similar reasons, we are proposing to permit a smaller reporting company, for filings other than initial 
registration statements, to provide an update to the general development of the business disclosure, instead of a 
full discussion, that complies with proposed Item 101(a)(2), including the proposed hyperlink requirement.  See 
the proposed amendment of Item 101(h). 
55
     Proposed Item 101(a) refers to materiality in the introductory language of paragraph (a)(1).  While materiality is 
repeated in three of the four listed topics that follow, this is not intended to create a second or different analysis 
regarding materiality for any such topic.  

19 
 
strategy.  Item 101(a) does not currently require disclosure of material changes to a registrant’s 
previously disclosed business strategy.  The Concept Release solicited input on whether Item 
101(a) should be revised to require the disclosure of a registrant’s business strategy; whether 
investors would find such disclosure important or useful and, if so, whether this requirement 
should be included in Management’s Discussion and Analysis (“MD&A”);
56
 and whether 
“business strategy” should be defined.
57
  Commenters were divided on whether disclosure of a 
registrant’s business strategy should be a requirement.
58
  Most of the commenters that opposed a 
mandatory business strategy disclosure requirement did so on the grounds that because a 
registrant’s business strategy could be proprietary, its disclosure could cause competitive harm.
59
 
Many registrants currently include disclosure regarding their business strategy in their 
initial registration statements.  We believe that information regarding material changes to a 
previously disclosed business strategy may be material information for investors.  We are 
therefore proposing to include material changes to a registrant’s previously disclosed business 
strategy as a listed disclosure topic under Item 101(a).  However, if a registrant has not 
previously disclosed its business strategy, we are not proposing to make the disclosure of that 
strategy mandatory in a Commission filing because of the concerns raised by commenters that 
such a requirement could force registrants to disclose proprietary information that could be 
                                                 
56
     Item 303(a) [17 CFR 229.303(a)]. 
57
  See Concept Release, supra note 6. 
58
     Several commenters supported requiring disclosure of a registrant’s business strategy.  See, e.g., letters from 
IIRC, NEI Investments (July 21, 2016), NYSSCPA, PRI, S. Percoco, AFL-CIO and International Corporate 
Accountability Roundtable (July 19, 2016).  Other commenters opposed requiring disclosure of a registrant’s 
business strategy.  See letters from Allstate, Fenwick, Maryland Bar Securities Committee and CFA Institute, 
although CFA Institute supported voluntary disclosure of a registrant’s business strategy. 
59
  See letters from Allstate, Fenwick, and Maryland Bar Securities Committee. 

20 
 
harmful to their competitive position.
60
   
To the extent that other matters beyond those listed in the amended item are material to 
an understanding of the general development of a registrant’s business, the registrant would be 
required to disclose those matters as well.   
Request for Comment 
Is a prescribed timeframe for disclosure regarding the general development of a 1. 
registrant’s business necessary or desirable?  If we should retain a prescribed 
timeframe, is the current five-year timeframe appropriate, or should it be longer or 
shorter? 
Alternatively, should we require a more detailed discussion of a registrant’s general 2. 
development of business on a periodic basis, such as every three years, and summary 
disclosure in other years?  If so, would three years be an appropriate period, or 
should it be shorter or longer? 
For filings other than initial registration statements, should we no longer require a 3. 
full discussion of the general development of the registrant’s business, and require 
instead an update to the general development of the business disclosure with a focus 
on material developments in the reporting period, as proposed?   
When only updated business disclosure is provided in a filing, should we require the 4. 
incorporation by reference of, and active hyperlink to, the most recently filed 
disclosure that, together with the update, would present a full discussion of the 
general development of a registrant’s business, as proposed?  Would such an 
approach, which would enable a reader to review the updated disclosure and one 
                                                 
60
  See, e.g., letter from Fenwick. 

21 
 
hyperlinked disclosure, facilitate an investor’s understanding of the general 
development of a registrant’s business?  
Would registrants find it difficult to apply the proposed principles-based 5. 
requirements?  How could we alleviate any expected difficulties? 
Would principles-based requirements for Item 101(a) effectively facilitate the 6. 
provision of information that is material to an investment decision?  If not, how 
might Item 101(a) be further improved? 
 Should we provide a list of topics that may be material to an understanding of a 7. 
registrant’s business development, as proposed?  Are the proposed topics 
(transactions and events that affect or may affect the company’s operations, 
including material changes to a previously disclosed business strategy; bankruptcy, 
receivership, or any similar proceeding; the nature and effects of any other material 
reclassification, merger or consolidation of the registrant or any of its significant 
subsidiaries; and the acquisition or disposition of a material amount of assets other 
than in the ordinary course of business) appropriate?  Should we exclude any of our 
proposed topics?  Are there other topics that should be added (e.g., material changes 
in the mode of conducting the business)?  Should we require disclosure of any or all 
of the proposed topics in all circumstances? 
Should we make disclosure of business strategy mandatory in Commission filings?  8. 
If so, how should “business strategy” be defined and what can we do to address 
concerns about confidentiality?  
Should we revise Item 101(h) to eliminate the provision that currently requires 9. 
smaller reporting companies to describe the development of their business during the 

22 
 
last three years, as proposed?  Is a prescribed timeframe for such disclosure 
necessary or desirable?  If we should retain a prescribed timeframe, is the current 
three-year timeframe appropriate, or should it be longer or shorter? 
We are proposing to retain the current requirement in Item 101(h) that if a smaller 10. 
reporting company has not been in business for three years, it must provide the same 
information for predecessor(s) of the smaller reporting company if there are any.  
Should we eliminate or adjust this predecessor disclosure requirement for smaller 
reporting companies?  A registrant that is not a smaller reporting company must also 
provide information about its predecessors in certain circumstances under current 
Item 101(a)(2).  Should we eliminate the predecessor disclosure obligations for those 
registrants? 
Should we permit certain registrants to provide the general business development 11. 
disclosure by other means (e.g., by a filer information page on the company’s  
website)?  If so, which registrants?  Should we limit the use of such alternative 
means to well-known seasoned issuers?  Are there concerns raised by the posting of 
the disclosure on a company’s website (e.g., regarding how long the company must 
retain the business development disclosure, when it must update the disclosure, and 
liability issues)?  If so, how should those concerns be resolved?        
B. Narrative Description of Business (Item 101(c))   
 Item 101(c) requires a narrative description of the business done and intended to be done 
by the registrant and its subsidiaries, focusing upon the registrant’s dominant segment or each 
reportable segment about which financial information is presented in the financial statements.  
To the extent material to an understanding of the registrant’s business taken as a whole, the 

23 
 
description of each such segment must include ten specific items listed in Item 101(c) (see Items 
(1)-(10) in the list below).    Item 101(c) specifies two other items that must be discussed with 
respect to the registrant’s business in general (see Items (11)-(12) in the list below), although, 
where material, the registrant must also identify the segments to which those matters are 
significant:
61
   
(1)  Principal products produced and services rendered; 
(2)  New products or segments; 
(3)  Sources and availability of raw materials; 
(4)  Intellectual property; 
(5)  Seasonality of the business; 
(6)  Working capital practices; 
(7)  Dependence on certain customers; 
(8)  Dollar amount of backlog orders believed to be firm; 
(9)  Business subject to renegotiation or termination of government contracts; 
(10)  Competitive conditions; 
(11)  The material effects of compliance with environmental laws; and 
(12)  Number of employees.
62
 
The earliest forms of registration statements and annual reports required a brief outline of 
                                                 
61
     Item 101(c)(1) [17 CFR 229.101(c)(1)] specifies that, to the extent material to an understanding of the 
registrant’s business taken as a whole, the description of each segment must include the information specified in 
paragraphs  (c)(i) through (x).  Information in paragraphs (c)(xi) through (xiii) is required to be discussed for 
the registrant’s business in general; where material, the segments to which these matters are significant also 
must be identified.   
62
     The Commission recently removed and reserved Item 101(c)(1)(xi), which required disclosure of company- and 
customer-sponsored research and development activities, largely because U.S. GAAP requires similar, but 
broader, disclosure.  See Disclosure Update and Simplification Final Rule, Release No. 33-10532 (Aug. 17, 
2018) [83 FR 50148 (Oct. 4, 2018) (“DUSTR Adopting Release”).  Thus, there currently are twelve enumerated 
disclosure items under Item 101(c). 

24 
 
the general character of the business done and intended to be done by a registrant.
63
  Many of the 
enumerated disclosure requirements in Item 101(c) were adopted in 1973.
64
  The 1973 adopting 
release noted that, in making investment decisions, venture capitalists and underwriters typically 
obtained specific information from companies about their competitive position and methods of 
competition in their respective industries and, accordingly, the new requirements were expected 
to provide similar information to the investing public.
65
  At the same time, the Commission also 
added requirements for the disclosure of the amount of backlog orders, the sources and 
availability of raw materials essential to the business, the number of employees and working 
capital practices.
66
 
In the S-K Study, the staff recommended reviewing the description of business for 
continuing relevance in light of changes that have occurred in the way businesses operate, which 
may make other disclosures relevant that are not expressly addressed under the current 
requirements.
67
  The Concept Release sought comment on whether Item 101(c) continues to 
provide useful information to investors and how the Item’s requirements may be improved.
68
  In 
particular, the Concept Release sought comment on the impact of listing the then thirteen 
                                                 
63
  See, e.g., Item 5 of Form A-2 adopted in 1935, which required registrants to outline briefly “the general 
character of the business done and intended to be done by the registrant and its subsidiaries.” See Release No. 
33-276 (Jan. 14, 1935) [not published in the Federal Register].   Additionally, Items 3 through 5 of Form A-1, 
adopted in 1933, required registrants to briefly describe “the character of business done or intended to be done,” 
disclose a list of states where the issuer owned property and was qualified to do business, and the length of time 
the registrant had been engaged in its business.  See Release No. 33-5 (July 6, 1933) [not published in the 
Federal Register].   
64
  See New Ventures, Meaningful Disclosure, Release No. 33-5395 (June 1, 1973) [38 FR 17202 (June 29, 1973)].   
65
  See id.    
66
  See id. 
67
  See S-K Study, supra note 3, at 99-100.   
68
  See Concept Release, supra note 6. 

25 
 
requirements and whether the prescriptive items result in disclosure of information that is not 
important to some registrants.
69
   
A number of commenters recommended revising Item 101(c) to make it more principles-
based.
70
  A few commenters recommended emphasizing that the sub-items enumerated in Item 
101(c) are examples only,
71
 while another commenter recommended revising the Item to specify 
that registrants should consider whether information that does not fall into the enumerated 
examples should nonetheless be disclosed.
72
  Some commenters recommended retaining the Item 
as it currently stands.
73
   
Because the 12 items may not be relevant to all registrants, they can elicit disclosure that 
is not material to a particular registrant.  For the most part, Item 101(c) currently provides that a 
registrant must disclose the enumerated items to the extent material to an understanding of the 
registrant’s business taken as a whole.    Based on the comments received that were critical of this 
provision,
74
 i t appears, however, that many registrants may interpret Item 101(c) as requiring 
disclosure of each enumerated item, even if it is not material.  We believe that shifting to an 
updated and more principles-based disclosure framework for Item 101(c) would encourage 
registrants to exercise judgment in evaluating what disclosure to provide, which would result in 
disclosure more appropriately tailored to a registrant’s specific facts and circumstances.   
                                                 
69
  See id. 
70
  See letters from Chamber, FedEx, CGCIV, BDO, United Health, CAQ, SIFMA, E&Y, Grant, PWC, Allstate, 
Davis, Fenwick, General Motors, Financial Executives International, and CFA Institute.   
71
  See letters from SIFMA and Allstate.  
72
  See letter from SIFMA. 
73
  See letters from RGA, CalSTRS and S. Percoco. 
74
  See supra note 70. 

26 
 
The Concept Release further sought comment on whether any of the current requirements 
in Item 101(c) should be presented in a different context, such as MD&A or risk factors.
75
  A 
number of commenters provided recommendations on the requirement to disclose working 
capital practices.
76
  Several of these commenters stated that working capital practices might be 
better addressed in MD&A,
77
 while one commenter suggested eliminating this disclosure from 
Item 101(c) because it is typically addressed in MD&A.
78
  In addition to being explicitly 
identified as a disclosure item in Item 101(c) for all registrants, Instruction 5 to Item 303(a) 
states that a discussion of working capital may be appropriate in MD&A for certain registrants.
79
  
In an effort to consolidate working capital disclosure in one location and to avoid duplicative 
disclosure, we do not propose to include working capital practices as a possible topic in Item 
101(c) with the expectation that working capital would be discussed in a registrant’s MD&A, to 
the extent material.  
To facilitate application of our principles-based revisions to Item 101, we propose to 
include in Item 101(c) the non-exclusive list of disclosure topics discussed below.
80
  We believe 
that the proposed topics would likely be material to many registrants and, thus, would facilitate 
the disclosure of information material to an investment decision while providing flexibility to 
                                                 
75
  See Concept Release, supra note 6. 
76
  See letters from Chamber, FedEx, CGCIV, and Fenwick.  
77
  See letters from Chamber, FedEx, and CGCIV.   
78
  See letter from Fenwick.  
79
     Instruction 5 to Item 303(a) (“For example, a discussion of working capital may be appropriate for certain 
manufacturing, industrial or related operations but might be inappropriate for a bank or public utility.”).  
80
     We are not proposing to amend the more prescriptive alternative disclosure standards regarding business 
development, description of business, and other information specified under Item 101(h)(1) through (6). We 
believe that this approach will continue to permit smaller reporting companies to provide a less detailed 
description of their business, consistent with the current scaled disclosure requirements for these companies. 

27 
 
tailor disclosure to the specific circumstances of each registrant.  The proposed topics would not 
be line-item requirements, but to the extent that a topic is material to an understanding of a 
registrant’s business, disclosure would be required.
81
 
Under our proposal, the revised rule would not explicitly reference some of the disclosure 
requirements currently contained in Item 101(c).  In addition to working capital practices, the 
proposed amendments would no longer list the following topics:  disclosure about new segments 
and dollar amount of backlog orders believed to be firm.  Nevertheless, under the proposed 
principles-based approach, registrants still would have to provide disclosure about these topics, 
as well as any other topics regarding the registrants’ business, if they are material to an 
understanding of their business. 
The proposal retains Item 101(c)’s distinction between disclosure topics for which 
segment disclosure should be the primary focus, and those for which the focus should be on the 
registrant’s business taken as a whole.  The proposal clarifies, however, that, for any listed topic, 
disclosure is required only to the extent that it is material to an understanding of the registrant’s 
business taken as a whole. 
Similar to current Item 101(c), most of the listed disclosure topics would fall into the 
category for which segment disclosure would be required to the extent the topic is material to an 
understanding of the registrant’s business taken as a whole.
82
  We believe that, for the topic 
regarding the material effects of compliance with government regulation, including 
environmental regulation, and the topic regarding human capital resources, the appropriate 
                                                 
81
     Similar to Item 101(a), proposed Item 101(c) refers to materiality in the introductory language of paragraphs 
(c)(1) and (2).  While materiality is repeated in some of the listed topics that follow, this is not intended to 
create a second or different analysis regarding materiality for any such topic.    
82
   See proposed Item 101(c)(1). 

28 
 
primary focus should be with respect to the registrant’s business taken as a whole.  Similar to the 
current rule, however, if the information elicited regarding these two topics is material to a 
particular segment, the registrant would additionally be required to identify that segment.
83
 
1. Revenue-generating activities, products and/or services, and any 
dependence on key products, services, product families, or customers, 
including governmental customers 
 
While we recognize that the twelve enumerated items in Item 101(c) may not be relevant 
across all industries or businesses, we continue to believe that disclosure regarding revenue-
generating activities, products and/or services, and any dependence on key products, services, 
product families, or customers, including governmental customers, would generally be material 
to an investment decision.  We agree with the commenter who stated that these elements are key 
to how reasonable investors often evaluate the future prospects of a registrant’s business and that 
highlighting these topics should elicit more informative disclosures.
84
  As such, we propose to 
retain as a listed disclosure topic information regarding revenue-generating activities, products 
and/or services, and any dependence on key products, services, product families or customers, 
including governmental customers, to the extent this information is material to an understanding 
of the registrant’s business.
85
   
                                                 
83
    See proposed Item 101(c)(2).   
84
  See letter from E&Y. 
85
  See proposed Item 101(c)(1)(i).  Form S-4 refers to the current version of Item 101(c)(1)(i), which pertained to a 
registrant’s principal products or services, but also refers to Items 101(b) and (d), which pertain, respectively, to 
certain financial information about business segments and geographic areas.  See paragraph (b)(3)(i) of Item 12 
under Part I, Section B of Form S-4.  The Commission recently eliminated Items 101(b) and (d) as business 
disclosure requirements because much of the disclosure was duplicative of disclosure in the registrant’s 
financial statements.  See DUSTR Adopting Release, supra note 62, at 50168-50169.  Because proposed Item 
101(c)(1)(i) would continue to pertain to a registrant’s products or services, we are proposing to retain this Item 
101 provision in Form S-4, but remove Items 101(b) and (d) from that Form to reflect their elimination from 
Regulation S-K.  The same paragraph of Form S-4 also includes descriptions of disclosure items included under 
Items 101(b), (c)(1)(i), or (d).  We are proposing to remove the descriptor that pertains to Item 101(d) (“foreign 
and domestic operations and export sales”), but retain the descriptor “industry segments” since that descriptor 
would continue to apply to Item 101(c)(1)(i).  We are proposing to substitute the descriptor “key products or 

29 
 
2. Status of development efforts for new or enhanced products, trends in 
market demand and competitive conditions 
We continue to believe that disclosure regarding development efforts for new or 
enhanced products, and trends in market demand and competition would generally be material to 
an investment decision.  In response to the Concept Release, several commenters suggested 
additional disclosure related to competitive conditions.  One commenter recommended requiring 
disclosure of the registrant’s competitive landscape, noting that companies not only compete 
within their industry but also with entities external to their industry segment.
86
  Another 
commenter supported greater disclosure of a registrant’s competitive position and especially the 
market share of its products, competitive landscape and industry trends shaping the nature of 
competition.
87
  Rather than prescribe additional disclosures for this topic that must be provided in 
all circumstances, we believe that a principles-based approach that allows flexibility for 
registrants to disclose this information to the extent it is material to an understanding of their 
business w ould better accommodate the variety of competitive conditions that registrants may 
face.
88
 
3. Resources material to a registrant’s business 
  
Currently two of the twelve disclosure requirements in Item 101(c) relate to registrants’ 
resources: Item 101(c)(1)(iii) requires disclosure of the sources and availability of raw materials, 
and Item 101(c)(1)(iv) requires disclosure of the importance, duration and effect of all patents, 
trademarks, licenses, franchises, and concessions held, each to the extent material to an 
                                                                                                                                                             
services” for “classes of similar products or services” because the proposed amendment to Item 101(c)(1)(i) 
would include the former but would eliminate the latter as a listed disclosure topic under Item 101(c)(1)(i). 
86
  See letter from CFA Institute. 
87
  See letter from S. Percoco. 
88
   See proposed Item 101(c)(1)(ii). 

30 
 
understanding of the registrant’s business taken as a whole.
89
   
As discussed in greater detail below, we propose modernizing these disclosure 
requirements to refocus registrants’ disclosure on all resources material to their business.  We 
believe that this approach would elicit more informative disclosure tailored to the specific 
circumstances of each company or its industry.  To facilitate application, we propose including 
(a) raw materials, and (b) patents, trademarks, licenses, franchises and concessions held, as 
examples of resources that may be material to a registrant’s business.   
a. Raw materials 
 
Item 101(c)(1)(iii) currently requires disclosure of the sources and availability of raw 
materials.
90
  In response to the Concept Release’s solicitation of feedback,
91
 we received several 
comment letters that specifically addressed the requirement to disclose the sources and 
availability of raw materials.
92
  Two commenters recommended retaining this requirement.
93
  
One of these commenters specified that the disclosure requirement should be retained with a 
materiality overlay,
94
 while the other commenter stated that disclosure should only be required if 
raw materials are difficult to obtain.
95
  One commenter stated that, where material, registrants 
generally discuss the specific sub-items in Item 101(c), including sources and availability of raw 
                                                 
89
     17 CFR 229.101(c)(1)(iii) and (iv). 
90
     17 CFR 229.101(c)(1)(iii). 
91
  See Concept Release, supra note 6. 
92
  See letters from Chamber, FedEx, CGCIV, Davis, Fenwick, and NYSSCPA. 
93
  See letters from Fenwick and NYSSCPA. 
94
  See letter from Fenwick.  
95
  See letter from NYSSCPA. 

31 
 
materials, in the business narrative or elsewhere, including MD&A.
96
   
We propose retaining sources and availability of raw materials as a listed disclosure topic 
in Item 101(c)
97
 because, while not applicable to all registrants, raw materials are fundamental to 
businesses that depend on them.  Although some registrants include disclosure regarding raw 
materials elsewhere in disclosure documents (such as in MD&A), this disclosure often has a 
different focus.
98
  Further, our proposal to shift Item 101(c) to a more principles-based approach 
would help clarify that disclosure regarding sources and availability of raw materials by 
registrants is required only when material to their business.  
b. The duration and effect of all patents, trademarks, licenses, 
franchises, and concessions held  
 
Item 101(c)(1)(iv) requires disclosure of the importance, duration, and effect of all 
patents, trademarks, licenses, franchises, and concessions held to the extent material to an 
understanding of the registrant’s business taken as a whole.
99
  The Concept Release solicited 
input on whether to maintain, expand or revise the current scope of this Item and requested 
comment on the competitive costs of this disclosure.
100
  It also sought comment on whether to 
limit this disclosure requirement to certain industries.
101
 
                                                 
96
  See letter from Davis. 
97
  See proposed Item 101(c)(1)(iii)(A). 
98
     For example, a discussion of raw materials in a registrant’s MD&A may focus more narrowly on the effect that 
spending on, or budgeting for, raw materials may have on a registrant’s liquidity and capital resources, whereas 
Item 101(c)(1) attempts to elicit broader disclosure concerning activities involving raw materials, including 
identifying and procuring sources for those raw materials, that may be material to an understanding of the 
registrant’s business as a whole. 
99
     17 CFR 229.101(c)(1)(iv).   
100
  See Concept Release, supra note 6. 
101
  See id. 

32 
 
Numerous commenters supported maintaining the current scope of Item 101(c)(1)(iv),
102
 
while several commenters opposed expanding this Item based on competitive concerns.
103
  Item 
101(c)(1)(iv) currently does not refer to disclosure of copyrights or trade secrets and many 
commenters expressed concern that requiring such disclosure would impose substantial costs and 
be unduly burdensome by requiring registrants to systematically identify and catalog such 
intellectual property.
104
  Further, several commenters suggested that because trade secret 
protection is contingent on the owner taking reasonable measures to keep the information secret, 
any revision to this Item to require disclosure of “intellectual property” would, by definition, 
include trade secrets and endanger these assets.
105
  In addition, some commenters opposed 
establishing different intellectual property requirements by industry
106
 and some commenters 
supported maintaining the current materiality threshold for disclosure.
107
 
Conversely, a number of commenters recommended generally expanding the scope of 
                                                 
102
  See letters from 36 Organizations with an Interest in Trade Secret Protection (Aug. 8, 2016) (“36 
Organizations”), Association of American Publishers (July 21, 2016), American Intellectual Property Law 
Association (Aug. 9, 2016) (“American IP Law Association”), Chamber, FedEx, Intellectual Property Owners 
Association (July 15, 2016) (“IP Owners Association”), S. Percoco, NAM, NYSSCPA, the Software 
Association, the Entertainment Software Association and the Software Information Industry Association (July 
21, 2016) (“Software Associations”), Financial Services Roundtable (July 21, 2016), General Motors, and 
Financial Executives International. 
103
  See letters from 36 Organizations (focusing only on trade secrets), American IP Law Association; Chamber, 
FedEx, Financial Services Roundtable (focusing only on trade secrets), IP Owners Association, NAM, 
Association of American Publishers (focusing only on copyrights), General Motors, Financial Executives 
International, and Software Associations. 
104
  See, e.g., letters from 36 Organizations, American IP Law Association, Chamber, FedEx, IP Owners 
Association, NAM, and Association of American Publishers. 
105
  See letters from 36 Organizations, American IP Law Association, Chamber, FedEx, Financial Services 
Roundtable, IP Owners Association, and NAM. 
106
  See letters from IP Owners Association, NYSSCPA, Software Associations, and American IP Law Association. 
107
  See letters from American IP Law Association, IP Owners Association, NAM, ACC and NYSSCPA. 

33 
 
Item 101(c)(1)(iv).
108
  In this regard, some commenters stated that a more complete record of a 
public company’s intellectual property is useful to the public, shareholders, researchers, and the 
financial markets generally.
109
  One of these commenters recommended expanding the 
requirement to include detailed intellectual property information for both material and 
immaterial intellectual property with the caveat that immaterial intellectual property should be 
required only if the information is readily available to report and within the knowledge of the 
company.
110
  Another commenter, in recommending expansion of this requirement, noted that 
intellectual property assets are a major driver of value in corporations, and asserted that more 
open disclosure would allow shareholders to better assess the value of corporate intellectual 
property assets and monitor directors’ stewardship of these assets.
111
   
Another commenter recommended including copyrights under this item and requiring 
detailed tabular disclosure by asset type.
112
  This commenter also opposed establishing different 
disclosure requirements by industry.
113
   
A broad range of industries directly and indirectly benefit from intellectual property
114
 
                                                 
108
  See letters from Black Stone IP, LLC (May 19, 2016), IIRC, Colleen V. Chien et al. (July 22, 2016) (“IP 
Professors”), Prof. Denoncourt (July 31, 2016), and CFA Institute.  
109
  See letters from IP Professors and Prof. Denoncourt. 
110
  See letter from IP Professors. 
111
  See letter from Prof. Denoncourt.  
112
  See letter from CFA Institute. 
113
  See id. 
114
  See Economics and Statistics Administration and United States Patent and Trademark Office, Intellectual 
Property and the U.S. Economy: Industries in Focus (Mar. 2012) at iv, available at 
http://www.uspto.gov/sites/default/files/news/publications/IP_Report_March_2012.pdf (“Intellectual Property 
Report”).  

34 
 
and intellectual property has become increasingly important to business performance.
115
  Certain 
industries produce or use significant amounts of intellectual property or rely more heavily on 
these rights.
116
  Accordingly, some registrants provide detailed disclosure in response to Item 
101(c)(1)(iv), although disclosure varies among registrants and across industries. 
In the biotechnology and pharmaceutical industries, registrants that provide detailed 
patent disclosure often disclose the jurisdiction in which the patent was filed, year of expiration, 
type of patent (e.g., composition of matter, method of use, method of delivery or method of 
manufacturing), products or technologies to which the patent relates and how the patent was 
acquired (e.g., licensed from another entity or owned and filed by the registrant).  Some 
registrants in these industries aggregate patent disclosure by groups of patents, potentially 
making disclosure about individual material patents difficult to discern.  As registrants in the 
biotechnology and pharmaceutical industries regularly sell one or more patented products that 
generate substantial revenue, disclosure of “patent cliffs,”
117
 which may result in material adverse 
                                                 
115
  See, e.g., Kelvin W. Willoughby, What impact does intellectual property have on the business performance of 
technology firms?, Int. J. Intellectual Property Management, Vol. 6, No. 4 (2013).   
116
  See Intellectual Property Report, supra note 114.  This report identifies seventy-five industries as “IP-
intensive.”  In this report, patents, trademarks and copyrights were the categories of intellectual property 
assessed.  The methodology for designating each of these subcategories as “IP-intensive” is outlined further in 
this report.  For patent intensive industries, the report utilized the North American Industry Classification 
System (NAICS) codes and identified, as the four most patent-intensive industries, those industries classified in 
computer and electronic product manufacturing (NAICS 334).  This three-digit NAICS industry includes 
computer and peripheral equipment; communications equipment; other computer and electronic products; 
semiconductor and other electronic components; and navigational, measuring, electro-medical, and control 
instruments.   
117
   The term “patent cliff” as used in the biotechnology and pharmaceutical industry refers to a future loss of patent 
protection and consequential loss of revenue.  These potential future losses are known to registrants far in 
advance of their onset.  When they occur, they often precipitate material adverse financial effects.  See, e.g., 
Andrew Jack, Pharma tries to avoid falling off ‘patent cliff,’ Financial Times, May 6, 2012 and Cliffhanger, 
Economist, Dec. 3, 2011.  See also Ed Silverman, Big Pharma Faces Some Big Patent Losses, but Pipelines are 
Improving, Wall St. J.: L. Blog, available at http://blogs.wsj.com/pharmalot/2015/02/09/big-pharma-faces-
some-big-patent-losses-but-pipelines-are-improving/.   

35 
 
financial effects, may be required in the risk factors section or MD&A.
118
 
In the information technologies and services industry, registrants protect their intellectual 
property through the use of patents, trademarks, copyrights, trade secrets, licenses, and 
confidentiality agreements.
119
  Registrants with large portfolios of intellectual property often 
disclose that their products, services, and technologies are not dependent on any specific patent, 
trademark, copyright, trade secret, or license.  As a result, these registrants often provide only 
high-level discussions of their intellectual property portfolios, which include general statements 
of a registrant’s development, use, and protection of its intellectual property.  Registrants with 
smaller intellectual property portfolios tend to provide slightly more detailed discussions, 
including, for example, disclosure of the total number of issued patents, a range of years during 
which those patents expire and the total number of pending patent applications. 
In general, registrants in the information technologies and services industry use 
copyrights to protect against the unauthorized copying of software programs
120
 and trade secrets 
to protect proprietary and confidential information that derives its value from continued 
secrecy.
121
  Since Item 101(c)(1)(iv) does not require disclosure about copyrights or trade secrets, 
registrants currently make disclosure about such matters voluntarily. 
We propose to retain as a listed disclosure topic the importance, duration and effect of 
                                                 
118
  See generally  “Interpretation: Commission Guidance Regarding Management's Discussion and Analysis of 
Financial Condition and Results of Operations,” Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 
2003)], available at https://www.sec.gov/rules/interp/33-8350.htm. 
119
   See Bruce Abramson, Promoting Innovation in the Software Industry: A First Principles Approach to 
Intellectual Property Reform, 8 B.U. J. Sci. & Tech. L. 75 (2002) (discussing the software industry’s use of 
intellectual property law). 
120
  See Dennis S. Karjala, Copyright Protection of Operating Software, Copyright Misuse, and Antitrust, 9 Cornell 
J.L. & Pub. Pol’y 161, 172 (1999) (discussing the dependence of software technology companies on copyright). 
121
  See Raymond T. Nimmer & Patricia Ann Krauthaus, Software Copyright: Sliding Scales and Abstracted 
Expression, 32 Hous. L. Rev. 317, 325 (1995) (distinguishing among the software industry’s use of trade secret 
law, patent law and copyright law). 

36 
 
patents, trademarks, licenses, franchises, and concessions held as non-exclusive types of property 
that may be material to a registrant’s business.
122
  In response to concerns expressed by 
commenters on the Concept Release, however, we are not proposing to expand this topic to 
include copyrights and trade secrets.  In addition to competitive concerns, commenters noted that 
because copyright and trade secret protection is not contingent on registration, a requirement to 
disclose even a subset of these two types of intellectual property would force registrants to 
systematically identify and catalog these types of intellectual property, which could impose 
substantial costs and require significant time.
123
 
4. A description of any material portion of the business that may be subject 
to renegotiation of profits or termination of contracts or subcontracts at 
the election of the Government 
 
Item 101(c)(1)(ix) requires, to the extent material to an understanding of the registrant’s 
business taken as a whole, disclosure of any material portion of a business that may be subject to 
renegotiation of profits or termination of contracts or subcontracts at the election of the 
Government.
124
   
Business contracts with agencies of the U.S. government and the various laws and 
regulations relating to procurement and performance of U.S. government contracts impose terms 
and rights that are different from those typically found in commercial contracts.  In a 1972 
Notice to Registrants, the Commission noted that government contracts are subject to 
                                                 
122
  See proposed Item 101(c)(1)(iii)(B). 
123
  See, e.g., letters from 36 Organizations, American Intellectual Property Law Association (Aug. 9, 2016), U.S. 
Chamber of Commerce (July 20, 2016), FedEx Corporation (July 21, 2016), Intellectual Property Owners 
Association (July 15, 2016), National Association of Manufacturers (July 21, 2016), Association of American 
Publishers (July 21, 2016).  But see also letters from International Integrated Reporting Council (July 20, 2016) 
and CFA Institute (Oct. 6, 2016) (supporting the inclusion of copyrights under Item 101(c)). 
124
   17 CFR 229.101(c)(1)(ix). 

37 
 
renegotiation of profit and to termination for the convenience of the government.
125
  At any 
given time in the performance of a government contract, an estimate of its profitability is often 
subject not only to additional costs to be incurred, but also to the outcome of future negotiations 
or possible claims relating to costs already incurred.
126
  
Registrants with U.S. government contracts tend to disclose that the funding of these 
contracts is subject to the availability of Congressional appropriations and that, as a result, long-
term government contracts are partially funded initially with additional funds committed only as 
Congress makes further appropriations.  These registrants disclose that they may be required to 
maintain security clearances for facilities and personnel in order to protect classified information.  
Additionally, these registrants state that they may be subject to routine government audits and 
investigations, and any deficiencies or illegal activities identified during the audits or 
investigations may result in the forfeiture or suspension of payments and civil or criminal 
penalties.  We are proposing to retain renegotiation or termination of government contracts as a 
listed disclosure topic
127
 because we continue to believe that, when material to a business, 
disclosure of this information is important for investors.   
5. The extent to which the business is or may be seasonal 
Item 101(c)(1)(v) requires disclosure of the extent to which the business of the segment is 
or may be seasonal to the extent material to an understanding of the registrant’s business taken as 
a whole.
128
  The Commission recently considered whether to delete Item 101(c)(1)(v).
129
  While 
                                                 
125
  See Defense and Other Long Term Contracts; Prompt and Accurate Disclosure of Information, Release No. 33-
5263 (June 22, 1972) [37 FR 21464 (Oct. 11, 1972)].  
126
  See id. 
127
   See proposed Item 101(c)(1)(iv). 
128
   17 CFR 229.101(c)(1)(v). 

38 
 
the Commission initially proposed deleting this Item,
130
 noting that both Regulation S-K
131
 and 
U.S. GAAP
132
 require disclosures about seasonality in interim periods,
133
 the Commission 
ultimately decided to delete Instruction 5 to Item 303(b) of Regulation S-K, which also required 
a discussion of any seasonal aspects that have had a material effect on a registrant’s financial 
condition or results of operations,
134
 and retain Item 101(c)(1)(v).  The Commission based its 
decision to retain this Item on a concern about the potential loss of information in the fourth 
quarter about the extent to which the business of a registrant or its segment(s) is or may be 
seasonal because U.S. GAAP may not elicit this disclosure.
135
   
In light of the Commission’s recent evaluation of this disclosure item, we propose 
including as a disclosure topic in Item 101(c) the extent to which the business is or may be 
seasonal.
136
  
6. Compliance with material government regulations, including 
environmental regulations 
                                                                                                                                                             
129
  See Disclosure Update and Simplification Proposed Rule, Release No. 33-10110 (July 13, 2016) [81 FR 51607 
(Aug. 4, 2016)] (“DUSTR Proposing Release”).  Public comments on the DUSTR Proposing Release are 
available at https://www.sec.gov/comments/s7-15-16/s71516.htm.  We refer to these letters throughout as 
“DUSTR” letters.  
130
  See DUSTR Proposing Release, supra note 129. 
131
   Instruction 5 to Item 303(b) of Regulation S-K [17 CFR 229.303(b)] required a discussion of any seasonal 
aspects of a registrant’s business where the effect is material.   
132
   ASC 270-10-45-11.   
133
  See DUSTR Proposing Release, supra note 129. 
134
   The Commission decided to delete Instruction 5 to Item 303(b) because of its belief that U.S. GAAP in 
combination with the remainder of Item 303 requires disclosures in interim reports that convey reasonably 
similar information to the disclosures required by Instruction 5 to Item 303(b).  See DUSTR Adopting Release, 
supra note 62, at 50169.   
135
  See id.  ASC 270-10-45-11 states that entities should consider supplementing interim reports with information 
for 12-month periods ended at the interim date to avoid the possibility that interim results with material seasonal 
variations may be taken as fairly indicative of the estimated results for a full fiscal year.   
136
  See proposed Item 101(c)(1)(v). 

39 
 
 
Item 101(c)(1)(xii) requires disclosure of the material effects of compliance with 
environmental laws on the capital expenditures, earnings and competitive position of the 
registrant and its subsidiaries, as well as any material estimated capital expenditures for the 
remainder of the fiscal year, the succeeding fiscal year, and such future periods that the registrant 
deems material.
137
   
The Concept Release solicited input on whether to increase or reduce the disclosure 
required by this Item and whether this disclosure is important to investors.
138
  It also sought 
comment on whether to require this disclosure in a different format.
139
  Some commenters 
supported retaining Item 101(c)(1)(xii).
140
  A few of these commenters stated that this disclosure 
would increase in importance given trends toward an enhanced regulatory approach to 
environmental protection.
141
  Several commenters supported retaining the Item but opposed 
expanding it to include additional requirements.
142
  Other commenters supported expanding this 
Item.
143
  A few of these commenters supported requiring more detailed disclosure of 
environmental fines, violations, and litigation (e.g., whether these are rare or recurring).
144
  One 
commenter recommended including this requirement in a broader category of government 
                                                 
137
     17 CFR 229.101(c)(1)(xii).   
138
  See Concept Release, supra note 6. 
139
  See id. 
140
  See letters from PRI, the Carbon Tracker Initiative (July 20, 2016), S. Percoco, Chamber, FedEx, CGCIV, 
NIRI, and CFA Institute.  
141
  See, e.g., letters from PRI and the Carbon Tracker Initiative. 
142
  See letters from Chamber, FedEx, CGCIV, and NIRI. 
143
  See letters from CalPERS, DHC Consulting, Impax Asset Management Limited (July 19, 2016) (“Impax”), 
Good Jobs First, Domini Social, and GRI. 
144
  See letters from Impax, Domini Social and Good Jobs First. 

40 
 
regulations.
145
 
Pursuant to the National Environmental Policy Act of 1969 (“NEPA”),
146
 which 
mandated consideration of the environment in regulatory action, in 1973, the Commission 
adopted a new provision to require disclosure of the material effects that compliance with 
Federal, state and local environmental laws may have on the capital expenditures, earnings, and 
competitive position of the registrant, now designated as Item 101(c)(1)(xii).
147
  Subsequent 
litigation
148
 concerning both the denial of a rulemaking petition and adoption of the 1973 
environmental disclosure requirements resulted in the Commission initiating public proceedings 
primarily to elicit comments on whether the provisions of NEPA required further rulemaking.
149
  
As a result of these proceedings, the Commission in 1976 amended the Item 101 requirements to 
specifically require disclosure of any material estimated capital expenditures for environmental 
control facilities for the remainder of the registrant’s current and succeeding fiscal years, and for 
any further periods that are deemed material.
150
 
While there is no separate line item requiring disclosure of government regulations that 
may be material to a registrant’s business, it is common practice for many registrants to include 
                                                 
145
  See letter from Fenwick. 
146
     Pub.L. 91-190, 42 U.S.C. 4321-4347 (Jan. 1, 1970) (“NEPA”).  
147
  See Disclosure with Respect to Compliance with Environmental Requirements and Other Matters, Release 33-
5386 (Apr. 20, 1973) [38 FR 12100 (May 9, 1973)] (“Environmental Disclosure Adopting Release”).   
148
  See Natural Resources Defense Council, Inc. v. SEC, 389 F. Supp. 689 (D.D.C. 1974); and Natural Resources 
Defense Council, Inc. v. SEC, 606 F.2d 1031 (D.C. Cir. 1979), rev’g 432 F. Supp. 1190 (D.D.C. 1977).  See 
also U.S. Sec. & Exch. Comm’n,, Staff Report on Corporate Accountability 1, 251-259 (Comm. Print 1979) 
(“Staff Report”) (providing a description of this litigation). 
149
  See Disclosure of Environmental and Other Socially Significant Matters, Release No. 33-5569 (Feb. 11, 1975) 
[40 FR 7013 (Feb. 18, 1975)]. 
150
  See Conclusions and Final Action on Rulemaking Proposals Relating to Environmental Disclosure, Release No. 
33-5704 (May 6, 1976) [41 FR 21632 (May 27, 1976)].  For further discussion of how the Commission has 
sought to consider environmental effects in its business disclosure requirements, see infra Section II.C.2. 

41 
 
disclosure regarding such information in response to Item 101(c)(1)(xii).  The Concept Release 
sought comment on whether to require registrants to disclose government regulations material to 
their business given that many registrants already voluntarily provide such information.
151
  In 
addition, it sought input on whether to require disclosure of foreign regulations applicable to the 
operation of the registrant’s business.
152
  A few commenters supported a specific requirement to 
disclose government regulations
153
 while one commenter opposed such a requirement, stating 
that it would not provide significant additional information.
154
  Some commenters supported 
requiring disclosure of foreign regulatory risks.
155
  Two commenters specified that this 
requirement should be limited to foreign regulations material to the registrant’s business.
156
  One 
commenter opposed a requirement to discuss foreign regulations that affect a registrant’s 
business and, instead, recommended revising Item 103 to require disclosure of any foreign tax 
audits or actions with negative findings, stating this would be less costly and time consuming 
than a requirement to disclose foreign regulations.
157
 
Although not required by Item 101(c), many registrants currently discuss government 
regulations relevant to their business, often in the form of a list.  Healthcare and insurance 
providers regularly disclose their collection, use and protection of individually-identifiable 
information and compliance with the Health Insurance Portability and Accountability Act of 
                                                 
151
  See Concept Release, supra note 6. 
152
  See id. 
153
  See letters from Fenwick and S. Percoco.  
154
  See letter from NYSSCPA. 
155
  See letters from IAC, NYSSCPA, and SIFMA. 
156
  See letters from NYSSCPA and SIFMA. 
157
  See letter from E. Bean. 

42 
 
1996,
158
 as well as the impact of the Patient Protection and Affordable Care Act
159
 on their 
business.  Biotechnology or medical device companies often disclose the status of and process 
for FDA approval of significant new drugs or medical devices.  Public utilities typically discuss 
regulation by various Federal, state, and local authorities and include information about state 
ratemaking procedures, which determine the rates utilities charge and the return on invested 
capital. 
Registrants in the financial services industry regularly describe Federal and state 
regulation as well as supervision by the Federal Reserve Board, while registrants with a material 
amount of U.S. government contracts disclose the laws and regulations for government contracts.  
Registrants with tax strategies involving foreign jurisdictions typically disclose that they are 
subject to income taxes in both the U.S. and numerous foreign jurisdictions, and that future 
changes to U.S. and non-U.S. tax law could adversely affect their anticipated financial position 
and results.  Some registrants disclose the impact of tax treaties between the U.S. and one or 
more foreign jurisdictions on their business.  
Consistent with the current practice of many registrants, as observed by the staff in its 
review of filings, we propose including the material effects of compliance with material 
government regulations, not just environmental laws, as a listed disclosure topic in Item 
101(c).
160
  This disclosure topic would focus on the material effects that compliance with 
material governmental regulations, both foreign and domestic, may have upon the capital 
                                                 
158
     Pub. L. No. 104-191, 110 Stat. 1936 (1996).   
159
     Pub. L. No. 111-148, 124 Stat. 119 (2010). 
160
  See proposed Item 101(c)(2)(i).  We note that, despite the repetition of materiality within this topic in relation to 
both effects of compliance and government regulations, we do not foresee any circumstances whereby a 
registrant could determine there are material effects from compliance with a government regulation, but that the 
government regulation itself is not material to the registrant’s business taken as a whole.   

43 
 
expenditures, earnings and competitive position of the registrant and its subsidiaries.  We believe 
that this more principles-based approach would help provide investors with the information 
material to an investment decision about a registrant’s compliance with the government 
regulations that materially affect the registrant’s business so that investors may achieve a more 
complete understanding of the registrant’s business.  This approach would also enable each 
registrant to tailor its disclosure regarding its compliance with those governmental regulations 
that are of particular importance to the registrant.  Finally, the proposed approach would codify 
what has become common practice regarding government regulation disclosure. 
While we propose to retain the requirement that a registrant disclose material estimated 
capital expenditures for environmental control facilities for the current fiscal year and any other 
subsequent period that the registrant deems material,
161
 we are not proposing to require the 
disclosure of additional specific expenditures related to environmental compliance, as some 
commenters have suggested.
162
  We believe that a more principles-based approach would permit 
a registrant to tailor its disclosure by focusing on the effects of environmental compliance that 
are material to its particular business.  This proposed approach would also benefit investors by 
helping to reduce or eliminate boilerplate or other disclosure concerning the effects of 
environmental compliance that may not be material to an understanding of the business of a 
particular registrant. 
                                                 
161
   Current Item 101(c)(i)(xii) requires the disclosure of material estimated capital expenditures for environmental 
control facilities for the remainder of a registrant’s current fiscal year and its succeeding fiscal year as well as 
for such further periods as the registrant may deem material.  In order to simplify the disclosure, and in keeping 
with our more principles-based approach, we are proposing to revise Item 101(c) to require such environmental 
control facilities expenditures disclosure for the registrant’s current fiscal year and any other subsequent period 
deemed material by the registrant.  See proposed Item 101(c)(2)(i). 
162
  See, e.g., letters from DHC Consulting, Domini Social, and Impax.  Our proposed approach is consistent with 
the views of several commenters that supported the retention of Item 101(c)’s environmental compliance 
disclosure provision while opposing its expansion.  See supra note 142. 

44 
 
7. Human capital disclosure 
Item 101(c)(1)(xiii) currently requires disclosure of the number of persons employed by 
the registrant.
163
  The Concept Release solicited input on this disclosure requirement;
164
 in 
particular, we requested feedback on:   
• Whether this disclosure is important to investors; 
• Whether to require or permit registrants to provide a range of its number of 
employees or independent contractors; 
• Whether disclosure regarding anticipated material changes in the number of 
employees would be useful to investors; and  
• Whether to require registrants to provide disclosure distinguishing among their 
total employees such as by full-time and part-time or seasonal employees; 
employees and independent contractors; or domestic or foreign employees.
165
  
Many commenters recommended retaining and expanding the requirement to disclose the 
number of persons employed by the registrant,
166
 with some asserting that disclosure of the exact 
                                                 
163
   17 CFR 229.101(c)(1)(xiii). 
164
   In addition, there has been congressional interest in the topic of modernizing human capital disclosures by 
registrants.  See, e.g., letter from Sen. Mark R. Warner (July 19, 2018) (“Sen. Warner”). 
165
  See Concept Release, supra note 6. 
166
  See letters from RGA, E. Bean (July 6, 2016), CII, Railpen, NYSC, Interfaith Center on Corporate 
Responsibility (July 14, 2016) (“ICCR”), US SIF Foundation (July 14, 2016) (“US SIF”), Dana Investment 
Advisors (July 15, 2016) (“Dana Investment”), Douglas Hileman Consulting LLC (July 15, 2016) (“DHC 
Consulting”), Sisters of Charity of Saint Elizabeth (July 18, 2016) (“Sisters of Charity”), Christian Church 
Foundation (July 18, 2016) (“CCF”), Park Foundation (July 19, 2016) (“Park”), OIP Trust (July 19, 2016) 
(“OIP”), Priests of the Sacred Heart (July 20, 2016) (“Sacred Heart”), Sister Schools of St. Francis (July 20, 
2016) (“S.S. St. Francis”), Friends Fiduciary Corporation (July 20, 2016) (“Friends”), LGIM, Everence 
Financial and the Praxis Mutual Funds (July 20, 2016) (“Everence”), Sister Schools of Notre Dame (July 21, 
2016) (“SSND”), Provincial of the School Sisters of St. Francis of St. Joseph Convent (July 20, 2016) (“SSSF-
Wisconsin”), As You Sow (July 21, 2016), CAQ, GRI (July 21, 2016), Domini Social, E&Y, CalSTRS, Hermes 
Investment Management (July 21, 2016), NYC Comptroller, Good Jobs First (July 21, 2016), Maryland Bar 
Securities Committee, Tri-State Coalition for Responsible Investment (July 21, 2016) (“TSCRI”), Addenda 
Capital (July 21, 2016), AFSCME, AFL-CIO, Bloomberg (July 21, 2016), Oxfam America (July 21, 2016), 

45 
 
number of employees would help investors understand the risks of potential material labor and 
human rights violations and that, for contractors or subcontractors, disclosing a range of these 
workers would be acceptable if sufficiently narrow and accompanied by disclosure explaining 
why the exact number is unavailable.
167
  Conversely, a number of commenters questioned the 
utility of requiring registrants to disclose the number of persons employed by the registrant.
168
  
Several of these commenters opposed expanding the requirement,
169
 while another commenter 
stated that this disclosure is typically immaterial and any change in the number of employees that 
materially affects the registrant’s results of operations would be disclosed in MD&A.
170
    
        With respect to whether anticipated material changes in the number of employees would 
be useful to investors, several commenters supported disclosure of employee turnover.
171
  
Numerous commenters further recommended requiring registrants to distinguish among their 
total employees.
172
  Most of these commenters recommended requiring this disclosure for both 
registrants and their suppliers, and specified inclusion of migrant, contract,  or temporary 
                                                                                                                                                             
Presbyterian Church U.S.A. (July 21, 2016) (“PC USA”), Allstate, Cornerstone, Christian Brothers Investment 
Services (July 21, 2016) (“CBIS”), S. Percoco, Responsible Sourcing Network (July 21, 2016) and CalPERS.  
167
  See letters from US SIF and US SIF Foundation (July 14, 2016) (“US SIF”), ICCR, Dana Investment, Sisters of 
Charity, CCF, Park, OIP, Sacred Heart, S.S. St. Francis, Friends, Everence, SSND, SSSF-Wisconsin, As You 
Sow, TSCRI, PC USA and CBIS. 
168
  See letters from Chamber, FedEx, CGCIV, and Fenwick. 
169
  See letters from Chamber, FedEx, and CGCIV. 
170
  See letter from Fenwick.  Another commenter stated that this information is immaterial, does not provide 
information about the size or scope of the business, and does not provide any clarity to the overall strategy of 
the company.  See letter from United Health.   Further, one commenter asserted that disclosures that comply 
with the current prescriptive requirement may not provide investors with the most appropriate information.     
171
  See letters from DHC Consulting, LGIM, Railpen, CalPERS, AFL-CIO, NYC Comptroller, AFSCME, CAQ, 
Domini Social, E&Y, Hermes Investment Management, and Cornerstone. 
172
  See letters from ICCR, Dana Investment, DHC Consulting, Sisters of Charity, CCF, Park, OIP, Sacred Heart, 
S.S. St. Francis, Friends, Everence, SSND, SSSF-Wisconsin, As You Sow, TSCRI, PC USA, CBIS, GRI, US 
SIF, Railpen, CalPERS, AFL-CIO, CAQ, Domini Social, CalSTRS, Good Jobs First, Maryland Bar Securities 
Committee, Bloomberg, and NYC Comptroller. 

46 
 
workers.
173
   
 
The Concept Release also solicited feedback on additional line-item disclosure 
requirements about a registrant’s business that would improve the quality and consistency of 
disclosure, and specifically sought input on whether to require additional information about a 
registrant’s employees or employment practices.
174
  A number of commenters advocated for 
greater human capital disclosure,
175
 with a variety of commenters recommending various specific 
disclosure topics, including: 
• Worker recruitment, employment practices,  and hiring practices;
176
   
• Employee benefits and grievance mechanisms;
177
   
• ”Employee engagement” or investment in employee training;
178
   
• Workplace health and safety;
179
   
• Strategies and goals related to human capital management and legal or regulatory 
                                                 
173
  See letters from ICCR, Dana Investment, DHC Consulting, Sisters of Charity, CCF, Park, OIP, Sacred Heart, 
S.S. St. Francis, Friends, Everence, SSND, SSSF-Wisconsin, As You Sow, TSCRI, PC USA, CBIS, GRI, and 
Good Jobs First. 
174
  See Concept Release, supra note 6. 
175
  See, e.g., letters from M. Ferguson (July 7, 2016), Norges Bank Investment Management (July 15, 2016), P. 
Linzmeyer (July 19, 2016), LGIM, Railpen, Hermes Investment Management, NYC Comptroller, Addenda 
Capital, AFSCME, Working IDEAL (July 21, 2016), AFL-CIO, National Partnership for Women & Families 
(Aug. 8, 2016), and Rockefeller & Co., Inc. (July 21, 2016), and Sen. Warner.   
176
  See letters from ICCR, Dana Investment, Sisters of Charity, CCF, Park, OIP, Sacred Heart, S.S. St. Francis, 
Friends, Everence, SSND, SSSF-Wisconsin, As You Sow, TSCRI, CalPERS, PC USA, CBIS, and Domini 
Social. 
177
  See letters from ICCR, Dana Investment, Sisters of Charity, CCF, Park, OIP, Sacred Heart, S.S. St. Francis, 
Friends, Everence, SSND, SSSF-Wisconsin, As You Sow, TSCRI, PC USA, and CBIS. 
178
  See letters from LGIM, Railpen, CalPERS, AFL-CIO, NYC Comptroller, AFSCME, Addenda Capital and 
Hermes Investment Management.  See also letter from Joseph V. Carcello, Chair, Investor as Owner 
Subcommittee, on behalf of Subcommittee members, of the SEC’s Investor Advisory Committee (November 
22, 2016) (in response to FAST Act – SEC Required Study on Modernization and Simplification of Regulation 
S-K).   
179
  See letters from LGIM, Railpen, CalPERS, NYC Comptroller, AFSCME, AFL-CIO, and US SIF. 

47 
 
proceedings related to employee management;
180
    
• Whether employees are covered by collective bargaining agreements;
181
 and   
• Employee compensation or incentive structures.
182
 
We also received a rulemaking petition requesting that the Commission adopt new rules, 
or amend existing rules, to require registrants to disclose information about their human capital 
management policies, practices and performance (the “Human Capital Rulemaking Petition”).
183
  
Many of the comment letters received in support of the Human Capital Rulemaking Petition 
asserted the importance of human capital management in assessing the potential value and 
performance of a company over the long term.
184
  Further, a number of commenters asserted that 
companies with poor management of human capital may face operational, legal, and reputational 
risks while, in contrast, companies with strong human capital management may develop a 
competitive advantage.
185
  While the Human Capital Rulemaking Petition did not include specific 
recommendations for disclosure requirements related to human capital management, it included 
                                                 
180
  See letters from AFL-CIO and Domini Social. 
181
  See letter from Good Jobs First. 
182
  See letters from NYC Comptroller, AFL-CIO, CalPERS, and Domini Social. 
183
  See Rulemaking petition to require registrants to disclose information about their human capital management 
policies, practices and performance, File No. 4-711 (July 6, 2017), available at 
https://www.sec.gov/rules/petitions/2017/petn4-711.pdf and related comments available at 
https://www.sec.gov/comments/4-711/4-711.htm.  We refer to these letters throughout as “Human Capital 
Rulemaking Petition” letters.    
184
  See, e.g., letters from British Columbia Municipal Pension Board of Trustees (Sept. 29, 2017) [Human Capital 
Rulemaking Petition letter], CalPERS and CalSTRS (July 10, 2017) (“CalPERS and CalSTRS 1”)[Human 
Capital Rulemaking Petition letter], Center for Safety and Health Sustainability (June 15, 2018) (“Center for 
Safety”) [Human Capital Rulemaking Petition letter], David F. Larcker (Dec. 15, 2017) [Human Capital 
Rulemaking Petition letter], League of Allies (Apr. 25, 2018) [Human Capital Rulemaking Petition letter], and 
AFL-CIO (Sept. 22, 2017) [Human Capital Rulemaking Petition letter]. 
185
  See letters from Australian Council of Superannuation Investors (Nov. 20, 2017) [Human Capital Rulemaking 
Petition letter], British Columbia Municipal Pension Board of Trustees, CalPERS and CalSTRS 1, and Center 
for Safety.   

48 
 
categories of information that it characterized as fundamental to furthering investors’ 
understanding of how well a company is managing its human capital.
186
 
Item 101(c)(1)(xiii) dates back to a time when companies relied significantly on plant, 
property, and equipment to drive value.  At that time, a prescriptive requirement to disclose the 
number of employees may have been an effective means to elicit information material to an 
investment decision.  Today, intangible assets represent an essential resource for many 
companies.
187
  Because human capital may represent an important resource and driver of 
performance for certain companies,
 
 and as part of our efforts to modernize disclosure, we 
propose to amend Item 101(c) to refocus registrants’ human capital resources disclosures.
188
  
Specifically, we propose replacing the current requirement to disclose the number of employees 
with a requirement to disclose a description of the registrant’s human capital resources, including 
in such description any human capital measures or objectives that management focuses on in 
managing the business, to the extent such disclosures would be material to an understanding of 
the registrant’s business.   We recognize that the exact measures or objectives included in a 
registrant’s human capital resource disclosure may change over time and may depend on the 
industry.  The proposed amendment provides non-exclusive examples of human capital measures 
and objectives that may be material, depending on the nature of the registrant’s business and 
workforce, such as measures or objectives that address the attraction, development, and retention 
of personnel.   
                                                 
186
   See Human Capital Rulemaking Petition, supra note 183 (suggesting that the key categories of information are: 
workforce demographics; workforce stability; workforce composition; workforce skills and capabilities; 
workforce culture and empowerment; workforce health and safety; workforce productivity; human rights 
commitments and their implementation; workforce compensation and incentives). 
187
  See infra note 279. 
188
  See proposed Item 101(c)(2)(ii). 

49 
 
In assessing the best way to approach disclosure regarding human capital, we were 
mindful that each industry, and even each company within a specific industry, has its own human 
capital considerations, and that those considerations may evolve over time.  In light of this fact, 
and with the principle of materiality in mind, it is our view that prescribing fixed, specific line 
item disclosures in this area for all registrants would not result in the most meaningful 
disclosure.
189
  Instead, we believe that investors would be better served by understanding how 
each company looks at its human capital and, in particular, where management focuses its 
attention in this space.  The intent of the proposed requirement is to elicit, to the extent material 
to an understanding of the registrant’s business, disclosures regarding human capital that allow 
investors to better understand and evaluate this company resource and to see through the eyes of 
management how this resource is managed. 
Request for Comment 
12. Should we shift to a more principles-based approach for Item 101(c), as proposed?  
Would registrants find it difficult to apply the principles-based requirements?     
13. Would the proposed principles-based requirements elicit information that is material 
to an investment decision?  If not, how might Item 101(c) be further improved?  Are 
there any additional disclosure topics that we should include in Item 101(c) to 
facilitate disclosure?  Alternatively, should we exclude any of our proposed 
disclosure topics?   
                                                 
189
   The Investor Advisory Committee recently recommended that the SEC take measures to improve the disclosure 
of a registrant’s human capital management, and suggested that “any requirements should be crafted so as to 
reflect the varied circumstances of different businesses, and to eschew simple ‘one-size-fits-all’ approaches that 
obscure more than they add.”  Recommendation of the Investor Advisory Committee Human Capital 
Management Disclosure  (March 28, 2019), available at https://www.sec.gov/spotlight/investor-advisory-
committee-2012/human-capital-disclosure-recommendation.pdf. 

50 
 
14. Should we instead require disclosure of any or all of the topics addressed in our 
proposed examples?  If so, which topics?  Should we require other types of business 
information?  If so, what information?  
15. Should we retain Item 101(c)’s distinction between disclosure topics for which 
segment disclosure should be the primary focus, and those for which the focus should 
be on the registrant’s business taken as a whole, as proposed?  If so, is our allocation 
of the listed disclosure topics into the two categories appropriate? 
16. We are proposing to amend Item 101(c) to include as a listed disclosure topic the 
status of development efforts for new or enhanced products, trends in market demand 
and competitive conditions.  Would the disclosure elicited in response to this 
amendment overlap with the disclosure provided in response to our proposed 
amendment to Item 101(a) to include material changes to business strategy as a 
disclosure topic?  If so, should business strategy changes be included as a listed 
disclosure topic in Item 101(c) instead of Item 101(a)? 
17. Currently, the duration and effect of copyright and trade secret protection is not 
included within the scope of Item 101(c) disclosure.  Should we include it as a listed 
disclosure topic that could be provided?   
18. Is backlog typically discussed in MD&A or is it better suited for disclosure under 
Item 101(c) to the extent material?  Similarly, is working capital typically sufficiently 
disclosed in MD&A or is it better addressed under Item 101(c)? 
19. Should the extent to which the business is or may be seasonal be included as a listed 
disclosure topic, as proposed?  Alternatively, should we require this disclosure in all 
circumstances?  We note that fourth quarter disclosure about the extent to which the 

51 
 
business of a registrant or its segment(s) is or may be seasonal may not be elicited by 
U.S. GAAP.  We further note that there is no longer a separate seasonality instruction 
to MD&A.  Do these considerations support the continued inclusion of seasonal 
aspects of a registrant’s business, to the extent material to the understanding of a 
registrant’s business, as a listed disclosure topic? 
20. Should we include as a listed disclosure topic the material effects of compliance with 
material government regulations, as proposed, or should we focus more narrowly on 
compliance with environmental regulations, as currently required under Item 101(c)?  
Would the proposed more principles-based approach to governmental regulatory 
compliance disclosure elicit the appropriate level of disclosure about environmental 
and foreign regulatory risks?  If not, are there more specific disclosures that we 
should require?  Should we continue to include material estimated capital 
expenditures for environmental control facilities as a disclosure topic under Item 
101(c)? 
21. Should disclosure regarding human capital resources, including any material human 
capital measures or objectives that management focuses on in managing the business, 
be included under Item 101(c) as a listed disclosure topic, as proposed?  Should we 
define human capital?  If so, how? 
22. With respect to human capital resource disclosure, should we provide non-exclusive  
examples of the types of measures or objectives that management may focus on in 
managing the business, such as, depending on the nature of the registrant’s business 
and workforce, measures or objectives that address the attraction, development, and 
retention of personnel, as proposed?   Would providing specific examples potentially 

52 
 
result in disclosure that is immaterial and not tailored to a registrant’s specific 
business?  Would not including such examples result in a failure to elicit information 
that is material and in some cases comparable across different issuers?   
23. With respect to human capital resource disclosure, should we include other non-
exclusive examples of measures or objectives that may be material, such as the 
number and types of employees, including the number of full-time, part-time, 
seasonal and temporary workers, to the extent disclosure of such information would 
be material to an understanding of the registrant’s business?  Could other examples 
include, depending on the nature of the registrant’s business and workforce:  
measures with respect to the stability of the workforce, such as voluntary and 
involuntary turnover rates; measures regarding average hours of training per 
employee per year; information regarding human capital trends, such as competitive 
conditions and internal rates of hiring and promotion; measures regarding worker 
productivity; and the progress that management has made with respect to any 
objectives it has set regarding its human capital resources?  Would providing specific 
examples potentially result in disclosure that is immaterial and not tailored to a 
registrant’s specific business?  Would not including such examples result in a failure 
to elicit information that is material and in some cases comparable across different 
issuers?   
24. Should we retain an explicit requirement for registrants to disclose the number of 
their employees?  Alternatively, should we permit registrants to disclose a range of 
the number of its employees and/or a range for certain types of employees?   

53 
 
25. Foreign private issuers that file registration statements on Forms F-1, F-3, and F-4 are 
not subject to Item 101 and instead must meet the business disclosure requirements of 
Form 20-F.  Should we amend Form 20-F to require the disclosure of human capital 
resources, including any human capital measures or objectives that management 
focuses on in managing the business, to the extent material to an understanding of the 
registrant’s business?  Would such disclosure present a significant challenge to 
foreign private issuers to the extent that it is not required in other jurisdictions?  Are 
there other proposed Item 101 disclosure topics that we should require in Form 20-F? 
26. The Commission revised Form 20-F in 1999 to conform in large part to the 
international disclosure standards endorsed by the International Organization of 
Securities Commissions (“IOSCO”) for the non-financial statement portions of a 
disclosure document, which have served as the basis for the disclosure requirements 
in several foreign jurisdictions.
190
  One of the objectives of the IOSCO standards was 
to facilitate the cross-border flow of securities and capital by promoting the use of a 
single disclosure document that would be accepted in multiple jurisdictions.
191
  If we 
revise Form 20-F to include any of the proposed Item 101 amendments, would such 
revision reduce the ability of foreign private issuers to use a single document in 
multiple jurisdictions? 
27. The disclosure requirements regarding a foreign private issuer’s business under Form 
20-F are largely prescriptive.  Would amending Form 20-F to make the business 
disclosure more principles-based represent a more significant change, or impose a 
                                                 
190
    See International Disclosure Standards, Release No. 33-7745 (September 28, 1999) [64 FR 53900 (Oct. 5, 
1999)]. 
191
    See id. at 53901. 

54 
 
greater challenge, for foreign private issuer registrants than the proposed Item 101 
amendments would for domestic registrants?  Would the benefits of making Form 20-
F more principles-based nevertheless justify such an amendment? 
28.  Much of the disclosure required under Item 101(h) for smaller reporting companies 
is prescriptive.  Should we retain this prescriptive approach or adopt a more 
principles-based approach, similar to the proposed amendments to Items 101(a) and 
(c), under Item 101(h)?  Would smaller reporting companies find it difficult to apply 
a principles-based approach?  Should we consider changes to any of the listed 
disclosure items in Item 101(h)(1) through (6)? 
29. We are proposing to amend Form S-4 to conform it to changes made to Item 101 
pursuant to the DUSTR Adopting Release as well as to the proposed revisions to Item 
101(c) discussed above.
192
  Are the proposed revisions to Form S-4 appropriate? 
C. Legal Proceedings (Item 103) 
Item 103 requires disclosure of any material pending legal proceedings, other than 
ordinary routine litigation incidental to the business, to which the registrant or any of its 
subsidiaries is a party or of which any of their property is the subject.
193
  Item 103 also requires 
disclosure of the name of the court or agency in which the proceedings are pending, the date 
instituted, the principal parties thereto and a description of the factual basis alleged to underlie 
the proceeding and the relief sought.
194
  Similar information is to be included for such 
proceedings known to be contemplated by governmental authorities.
195
 
                                                 
192
  See supra note 85. 
193
   17 CFR 229.103. 
194
  See id. 
195
  See id. 

55 
 
The Commission first adopted a requirement to disclose all pending litigation that may 
materially affect the value of the security to be offered, describing the origin, nature and name of 
parties to the litigation, as part of Form A-1 in 1933.
196
  In 1935, the Commission included in 
Form A-2 a requirement for a brief description of material, pending legal proceedings and 
proceedings by governmental authorities, where such proceedings depart from the ordinary 
routine litigation incidental to the kind of business conducted by the registrant or its 
subsidiaries.
197
  The requirement was later expanded in Form S-1
198
 to include: (1) a requirement 
to identify the court or agency, the date instituted, and the names of the principal parties; (2) a 
requirement that material bankruptcy proceedings involving the registrant or its significant 
subsidiaries be described and any material proceeding involving a director, officer, affiliate, or 
principal security holder; and (3) an exemption for disclosure of proceedings involving claims of 
less than 15 percent of the registrant’s consolidated current assets.
199
   
As discussed in greater detail below, in connection with NEPA,
200
 the legal proceedings 
disclosure requirement was expanded to require additional disclosure about environmental 
matters.
201
  At the same time a requirement to disclose the factual basis of proceedings and the 
nature of relief sought was added, and the disclosure threshold was reduced from 15 percent to 
                                                 
196
  See Form A-1, Item 17, adopted in Release No. 33-5 (July 6, 1933) [not published in the Federal Register].   
197
  See Form A-2, Item 40, adopted in Release No. 33-276 (Jan. 14, 1935) [not published in the Federal Register].   
198
   17 CFR 239.11. 
199
  See Application for Registration of Securities, Release No. 33-3584 (Oct. 21, 1955) [20 FR 8284].  See also 
Forms for Registration Statements; Notice of Proposed Rulemaking, Release No. 33-3540 (Apr. 26, 1955) [20 
FR 2965].   
200
  See NEPA, supra note 146. 
201
  See Environmental Disclosure Adopting Release, supra note 147. 

56 
 
10 percent.
202
  In 1978, the requirement was also moved from the forms to Item 5 of Regulation 
S-K.
203
   
In the DUSTR Proposing Release, the Commission solicited comments about whether to 
retain, modify, eliminate, or refer the Item 103 disclosure requirements to the Financial 
Accounting Standards Board (“FASB”) for potential incorporation into U.S. GAAP.
204
  Many 
commenters opposed the integration of Item 103 into U.S. GAAP.
205
  A number of commenters
206
 
stated that the objectives of Item 103 and U.S. GAAP differ,
207
 and some of these commenters
208
 
indicated that a better articulation of objectives may be warranted.  Commenters further 
expressed concern that the integration could lead to increased disclosure of immaterial items and 
may eliminate the safe-harbor protections currently afforded to forward-looking statements 
related to legal proceedings under Regulation S-K.
209
 
Some commenters recommended the deletion of Item 103 altogether or,  at a minimum, 
                                                 
202
  See id. 
203
  See Integrated Reporting Requirements: Directors and Officers, Management Remuneration, Legal 
Proceedings, Principal Security Holders and Security Holdings of Management, Release No. 33-5949 (July 28, 
1978) [43 FR 34402]. 
204
  See DUSTR Proposing Release, supra note 129 at 51633. 
205
  See, e.g., letters from Center for Audit Quality (Oct. 3, 2016) (“CAQ 1”) [DUSTR letter], Corporate 
Governance Coalition for Investor Value (Oct. 27, 2016) (“CGCIV 1”) [DUSTR letter], Davis Polk & 
Wardwell LLP (Nov. 2, 2016) (“Davis 1”) [DUSTR letter], FedEx Corporation (Nov. 2, 2016) (“FedEx 1”) 
[DUSTR letter], Shearman & Sterling LLP (Dec. 1, 2016) (“Shearman 1”) [DUSTR letter], and U.S. Chamber 
of Commerce (Oct. 27, 2016) (“Chamber 1”) [DUSTR letter]. 
206
  See, e.g., letters from CAQ 1 and NAREIT (Oct. 28, 2016) (“NAREIT 1”) [DUSTR letter].   
207
   Item 103 is intended to provide a description of material pending legal proceedings, while U.S. GAAP is 
designed to provide information consistent with the accounting model for loss contingencies.   
208
  See, e.g., letters from CAQ 1 and Davis 1.   
209
  See letters from CGCIV 1, Davis 1, FedEx 1, NAREIT 1, Shearman 1, and Chamber 1.   

57 
 
some of the disclosure requirements contained therein.
210
  For example, one of these commenters 
asserted that U.S. GAAP, together with Items 303 and the former 503(c) (now Item 105) of 
Regulation S-K, elicits the appropriate level of disclosure of material legal proceedings to inform 
investment and voting decisions of a reasonable investor.
211
   
In response to concerns expressed by commenters, the Commission decided to retain the 
disclosure requirements in Item 103 without amendment and without referral to the FASB for 
potential incorporation into U.S. GAAP, indicating that further consideration was warranted with 
respect to the implications of potential changes to these requirements.
212
 
In light of the concerns expressed by commenters in response to the DUSTR Proposing 
Release, and after further consideration of how to improve the disclosure requirements in Item 
103, we are proposing the following amendments.
213
 
1. Expressly provide for the use of hyperlinks or cross-references to 
avoid repetitive disclosure  
Although Item 103 of Regulation S-K and U.S. GAAP differ in certain respects, they also 
have overlapping disclosure requirements.
214
  Thus, in order to comply with Item 103, registrants 
commonly repeat some or all of the disclosures that are provided elsewhere in the document, 
such as, for example, in the notes to the financial statements under U.S. GAAP, the MD&A,  and 
the Risk Factors sections. 
                                                 
210
  See letters from Davis 1, Edison Electric Institute and American Gas Association Accounting Advisory Council 
(Nov. 2, 2016) (“EEI and AGA 1”) [DUSTR letter] and Grant Thornton LLP (Nov. 1, 2016) [DUSTR letter].   
211
  See letter from Davis 1.   
212
  See DUSTR Adopting Release, supra note 62. 
213
   In addition to the proposed amendments discussed below, we also are proposing to reorganize Item 103 to 
incorporate the contents of the current instructions into the text of Item 103 and to eliminate the instructions. 
214
  See supra note 207 and infra note 235.  

58 
 
In an effort to encourage registrants to avoid duplicative disclosure, we propose to revise 
Item 103 to expressly state that some or all of the required information may be provided by 
including hyperlinks or cross-references to legal proceedings disclosure located elsewhere in the 
document. 
2. Update the disclosure threshold for environmental proceedings in 
which the government is a party  
 
Instruction 5.C. to Item 103 specifically requires disclosure of any proceeding under 
environmental laws to which a governmental authority is a party unless the registrant reasonably 
believes it will not result in sanctions of $100,000 or more; provided, however, that such 
proceedings which are similar in nature may be grouped and described generally.
215
 
Pursuant to NEPA, Congress required all Federal agencies to include consideration of the 
environment in regulatory action.
216
  The Commission’s initial action in the environmental area 
came in 1971 when an interpretive release was issued alerting registrants to the potential 
disclosure obligations that could arise from material environmental litigation and the material 
effects of compliance with environmental laws.
217
  After an assessment of the disclosure elicited 
under this release, the Commission determined that more specific disclosure standards were 
necessary and the Commission adopted amendments to certain registration and reporting forms 
                                                 
215
   17 CFR 229.103. 
216
  See NEPA, supra note 146.   
217
  See Disclosures Pertaining to Matters Involving the Environment and Civil Rights, Release No. 33-5170 (July 
19, 1971) [36 FR 13989 (July 29, 1971)] (“The Commission’s requirements for describing a registrant’s 
business on the forms and rules under the Securities and Exchange Act call for disclosure, if material, when 
compliance with statutory requirements...may materially affect the earning power of the business, or cause 
material changes in registrant’s business done or intended to be done.  Further, the Commission’s disclosure 
requirements relating to legal proceedings call for disclosure, where material, of proceedings arising...under 
statutes, Federal, state or local, regulating the discharge of materials into the environment, or otherwise 
specifically relating to the protection of the environment....”). 

59 
 
in 1973.
218
  The amendments required disclosure of (1) the material effects that compliance with 
Federal, state, and local environmental laws may have on the capital expenditures, earnings and 
competitive position of the registrant, and (2) any material pending or contemplated 
administrative or judicial proceedings involving Federal, state or local environmental laws, as 
well as any environmental proceeding by a governmental authority.
219
  While these amendments 
called for disclosure of all environmental proceedings involving governmental authorities, the 
Commission recognized that a complete description of each such proceeding might cause 
disclosure documents to be excessively detailed without a commensurate benefit to investors.
220
  
Therefore, the Commission also adopted at that time a provision which allowed registrants to 
group similar governmental proceedings and to describe them generally.
221
 
As noted earlier, 
222
 in 1975 the Commission initiated public proceedings
223
 to elicit 
comments on whether further rulemaking in the environmental area was appropriate.  The 
Commission solicited comments on a number of issues affecting environmental disclosure, such 
as the relevance of those disclosures to informed voting decisions.
224
  The request for comments 
resulted in certain staff recommendations, as set forth in the 1979 Staff Report on Corporate 
                                                 
218
  See Environmental Disclosure Adopting Release, supra note 147. 
219
  See id. 
220
  See id. 
221
  See id. 
222
  See supra notes 148 and 149 and accompanying text. 
223
   See  Release No. 33-5569 (Feb. 11, 1975) [40 FR 7013 (Feb. 18, 1975)].  As previously noted, as a result of 
these proceedings, the Commission amended its forms in 1976 to specifically require disclosure of any material 
estimated capital expenditures for environmental control facilities for the remainder of the registrant’s current 
fiscal year and its succeeding fiscal year, and for any further periods that are deemed material.  See Release No. 
33-5704, supra note 150. 
224
   See  Release No. 33-5569, supra note 223, at 7015.   

60 
 
Accountability,  concerning the Commission’s environmental disclosure provisions.
225
  The Staff 
Report concluded that disclosure of all environmental proceedings to which a governmental 
authority is a party resulted in lengthy disclosures which obscured more significant 
environmental proceedings.
226
  The Staff Report stated that “more focused disclosure could be 
more beneficial to investors and shareholders” and recommended that the disclosure requirement 
be amended to allow for a materiality threshold, instead of requiring disclosure of all such 
proceedings.
227
   
Consistent with the Staff Report,
228
 the Commission added environmental disclosure 
thresholds (including Instruction 5.C.) to current Item 103 in 1982.
229
  The 1982 amendments 
included new subparts A, B, and C to Instruction 5 of Item 103, with subpart C permitting 
registrants not to disclose environmental proceedings to which the government is a party if the 
registrant reasonably believes that monetary sanctions resulting from the proceedings will be less 
than $100,000.
230
  The 1981 proposing release for these amendments indicated that the $100,000 
threshold was based in part on actual fines assessed in environmental proceedings at the time.
231
  
In that release, the Commission stated its belief that disclosure of fines by governmental 
authorities may be of particular importance in assessing a registrant’s environmental compliance 
problems, and that a disclosure threshold based on governmental fines may be more indicative of 
                                                 
225
  See Staff Report, supra note148, at 250-86. 
226
  See id. 
227
  See id. 
228
  See id. 
229
  See 1982 Integrated Disclosure Adopting Release, supra note 9. 
230
  See id. 
231
  See Proposed Amendments to Item 5 of Regulation S-K Regarding Disclosure of Certain Environmental 
Proceedings, Release No. 33-6315 (May 5, 1981) [46 FR 25638 (May 8, 1981)]. 

61 
 
possible illegality and conduct contrary to public policy than other measures.
232
 
Since the current requirements in Instruction 5.C. to Item 103 were adopted in 1982, the 
Commission has explored ways in which environmental disclosures could be improved for 
investors while not unduly burdening registrants.  For example, the 1996 Report of the Task 
Force on Disclosure Simplification recommended replacing the $100,000 threshold with a 
general materiality standard or, alternatively, recommended raising the dollar threshold that 
triggers disclosure.
233
  The Task Force made this recommendation noting that in some 
circumstances the “one size fits all” approach may result in the disclosure of  information about 
environmental proceedings not material to an investment decision.
234
  However, the 
recommended changes were not proposed. 
Although the DUSTR Proposing Release did not specifically seek comment on the 
bright-line $100,000 threshold in Instruction 5.C. to Item 103,
235
 some commenters expressed 
opposition to the elimination of any bright-line thresholds in Commission disclosure 
requirements because the thresholds establish a baseline of disclosure for all registrants in certain 
                                                 
232
  See id.  
233
  See Report of the Task Force on Disclosure Simplification (Mar. 5, 1996), available at 
https://www.sec.gov/news/studies/smpl.htm.  
234
  See id. 
235
   The DUSTR Proposing Release more generally discussed the overlap in disclosure that could result from 
compliance with the requirements under Item 103 and U.S. GAAP, which requires the disclosure of loss 
contingencies (see ASC 450-20), and noted the differences between the two sets of requirements.  See DUSTR 
Proposing Release, supra note 129, at 51633-51634.  Following a discussion of those differences, the 
Commission solicited comment on whether inclusion of the Item 103 disclosures in the audited financial 
statements would create significant burdens for issuers and auditors.  See DUSTR Proposing Release, supra 
note 129 at 51635.  Because of the concerns expressed by the many commenters that opposed the integration of 
Item 103 into U.S. GAAP, the Commission did not amend the Item 103 disclosure requirements.  See DUSTR 
Adopting Release, supra note 62, at 50174. 

62 
 
areas.
236
  These commenters expressed concern about using a materiality standard for disclosure 
because it may reduce the information made available to investors or diminish comparability of 
registrants.
237
   
Other commenters supported eliminating the bright-line thresholds and generally 
supported a more principles-based disclosure framework.
238
  These commenters also asserted that 
materiality is a better disclosure standard because certain of the existing bright-line thresholds 
result in disclosure that may not be material to investors, may obscure material information and 
may be costly to provide.
239
 
We continue to believe that a disclosure threshold based on the imposition of a 
governmental fine is appropriate because such a fine may be important for investors in assessing 
a registrant’s environmental compliance.
240
  A disclosure threshold based on imposition of a 
governmental fine also provides a useful benchmark for registrants when determining whether a 
particular environmental proceeding, which can be factually and legally complex, should be 
disclosed.  Such a disclosure threshold also promotes comparability among registrants in the 
disclosure of environmental proceedings.  For these reasons, we propose to retain a disclosure 
threshold for environmental proceedings based on the imposition of a governmental fine. 
However, as the $100,000 disclosure threshold for environmental proceedings in which 
                                                 
236
  See, e.g., letters from AFL-CIO (Oct. 31, 2016) [DUSTR letter], CalPERS (Nov. 2, 2016) [DUSTR letter], CFA 
Institute (Dec. 7, 2016) [DUSTR letter], Public Citizen (Oct. 18, 2016) [DUSTR letter], and R.G. Associates, 
Inc. (Nov. 2, 2016) [DUSTR letter].   
237
  See id. 
238
  See, e.g., letters from CAQ 1, CGCIV 1, Chamber 1, The Clearing House Association L.L.C. (Oct. 28, 2016) 
(“Clearing House”), Davis 1, and Financial Executives International (Oct. 27, 2016) [DUSTR letters].    
239
   See, e.g., letters from CAQ 1, CGCIV 1, Clearing House, Davis 1, Deloitte & Touche LLP (Oct. 5, 2016) 
[DUSTR letter], EEI and AGA 1, NAREIT 1, Shearman 1, and Chamber 1.   
240
  See supra note 232 and accompanying text. 

63 
 
the government is a party has not been changed since it was adopted in 1982, we propose to 
increase this threshold to $300,000 to adjust it for inflation.  Using the May 1981 date of the 
proposing release in which the $100,000 threshold was first mentioned and using the Consumer 
Price Index (CPI) Inflation Calculator, we estimate that the threshold would be $285,180.40 as of 
May 2019.
241
  For ease of reference, we propose rounding this amount up to $300,000.  This 
increase would reflect an inflation adjustment to modernize this disclosure requirement. 
Request for Comment 
30. Would our proposed revisions to Item 103 improve disclosures required by the item?  
Are there different or additional revisions we should consider to improve Item 103 
disclosure? 
31. Should we expressly provide for the use of hyperlinks or cross-references, as 
proposed?  Would the use of multiple hyperlinks be cumbersome for investors?  Are 
there alternative recommendations that would more effectively decrease duplicative 
disclosure?  
32. Should we adjust the $100,000 threshold for environmental proceedings in which the 
government is a party in Item 103 for inflation, as proposed?  Should this threshold be 
adjusted for inflation periodically, such as every three years or some other interval? 
Does CPI inflation provide an appropriate adjustment factor for environmental 
proceedings?  If not, what adjustment factor should we use?   
33. Should we instead adopt an alternative threshold for environmental proceedings 
disclosure?  If so, what threshold should we use, and what data or sources should 
                                                 
241
  See CPI Inflation Calculator, available at https://data.bls.gov/cgi-bin/cpicalc.pl.  The calculator uses the 
Consumer Price Index for All Urban Consumers (CPI-U) U.S. city average series for all items, not seasonally 
adjusted.  

64 
 
provide the basis for the alternative threshold?  Should we raise the dollar threshold 
above the proposed $300,000 threshold, e.g., to $500,000, $750,000, or $1,000,000, 
and if so, what would be the basis for that increase?  Are there alternative approaches 
(e.g., a materiality threshold) that would work better than a bright-line dollar 
threshold?  If so, describe the approach and explain why it would be preferable to our 
proposal. 
34. Form 20-F requires a foreign private issuer to provide information on any legal or 
arbitration proceedings, including governmental proceedings pending or known to be 
contemplated, which may have, or have had in the recent past, significant effects on 
the company’s financial position or profitability.
242
  Similar to the proposed 
amendment to Item 103, should we amend Form 20-F to expressly state that some or 
all of the required information about legal proceedings may be provided by including 
hyperlinks or cross-references to legal proceedings disclosure located elsewhere?  
Should we amend Form 20-F to clarify that a foreign private issuer is only required to 
disclose material legal proceedings?  Would either amendment reduce a foreign 
private issuer’s ability to use a single disclosure document in multiple jurisdictions? 
D. Risk Factors (Item 105) 
Item 105 requires disclosure of the most significant factors that make an investment in 
the registrant or offering speculative or risky and specifies that the discussion should be concise 
and organized logically.
243
  The principles-based requirement further directs registrants to explain 
                                                 
242
  See Form 20-F, Item 8.A.7. 
243
   17 CFR 229.105.  As previously noted, in the FAST Act Adopting Release the Commission rescinded 
Item 503(c) of Regulation S-K and replaced it with new Item 105 of Regulation S-K.  See supra note 1.  
Smaller reporting companies are not required to provide the information under Item 105 in their Exchange Act 
filings on Form 10 [17 CFR 249.210], Form 10-K [17 CFR 249.310], and Form 10-Q [17 CFR 249.308a].  See 
Item 1A of
 Form 10, Form 10-K, and Form 10-Q.   

65 
 
how each risk affects the registrant or the securities being offered, discourages disclosure of risks 
that could apply generically to any registrant and requires registrants to set forth each risk factor 
under a sub-caption that adequately describes the risk.
244
 
 The Concept Release solicited comments on how to improve risk factor disclosure and 
sought feedback on several potential approaches aimed at facilitating more meaningful 
disclosure.
245
  Comments received were wide-ranging and no consensus emerged.  Numerous 
commenters supported a flexible or principles-based requirement.
246
  Several commenters 
recommended integrating risk factor disclosures with other non-risk and risk-related 
disclosures.
247
  Some commenters recommended further guidance on risk factor disclosure to 
illustrate what registrants should do to meet the Item’s disclosure objectives.
248
  Other 
commenters supported retaining the current approach to risk factors and opposed any changes to 
the current risk factor guidance and disclosure.
249
  
The revisions that we are proposing to Item 105 are intended to address the lengthy and 
generic nature of the risk factor disclosure presented by many registrants.  Although the length 
and number of risk factors disclosed by registrants varies, studies show that risk factor 
                                                 
244
  See id.   
245
  See Concept Release, supra note 6.  The potential approaches discussed included, for example, requiring that 
each risk factor be accompanied by a specific discussion of how the registrant is addressing the risk, requiring 
registrants to discuss the probability of occurrence and the effect on performance of each risk factor and 
requiring registrants to describe their assessment of risks. 
246
  See letters from CAQ, AFLAC, Chamber, FedEx, CGCIV, NAM, ACC, SIFMA, E&Y, EEI and AGA, Wilson 
Sonsini, NAREIT, Davis, Fenwick, NIRI, Shearman, PWC, General Motors, and Financial Executives 
International. 
247
  See letters from PNC, SIFMA, CalPERS, the Carbon Tracker Initiative, Medical Benefits Trust, E&Y, and 
BDO. 
248
  See letters from NYSSCPA, General Motors, and Financial Executives International. 
249
  See letters from Ball Corporation, API, and Chevron. 

66 
 
disclosures have increased in recent years.
250
  For example, one study found that registrants 
increased the length of risk factor disclosures from 2006 to 2014 by more than 50 percent in 
terms of word count, compared to the word count in other sections of Form 10-K that increased 
only by about 10 percent, and that this increase in risk factor word count may not be associated 
with better disclosure.
251
 
A contributing factor to the increased length of risk factor disclosure appears to be the 
inclusion of generic, boilerplate risks that could apply to any offering or registrant.  Although 
Item 105 instructs registrants not to present risks that could apply to any registrant, and despite 
Commission and staff guidance stating that risk factors should be focused on the “most 
significant” risks and should not be boilerplate,
252
 it is not uncommon for companies to include 
                                                 
250
  See PricewaterhouseCoopers LLP, Stay Informed, 2012 Financial Reporting Survey: Energy industry current 
trends in SEC reporting, Feb. 2013, available at http://www.pwc.com/en_GX/gx/oil-gas-
energy/publications/pdfs/pwc-sec-financial-reporting-energy.pdf (“2012 PWC Report”).  This report reviewed 
financial reporting trends of 87 registrants with market capitalizations of at least $1 billion that apply U.S. 
GAAP in the following subsectors of the energy industry: downstream, drillers, independent oil and gas, major 
integrated oil and gas, midstream and oil field equipment and services.  Based on this study, the average number 
of risk factors in the major integrated oil and gas sector was 12 while the average number of risk factors in the 
midstream sector was 51.  In one sector, the maximum number of risk factors was 95.  See also 
PricewaterhouseCoopers LLP, Stay Informed: 2014 technology financial reporting trends, Aug. 2014, available 
at   http://www.pwc.com/en_US/us/technology/publications/assets/pwc-2014-technology-financial-reporting-
trends.pdf  (reviewing the annual and periodic filings of 135 registrants in the software and internet, computers 
and networking, and semiconductors sectors, and finding that over half of the registrants surveyed repeated all 
of their risk factors in their quarterly filings); and Travis Dyer, Mark Lang and Lorien Stice-Lawrence, The 
Ever-Expanding 10-K: Why Are 10-Ks Getting So Much Longer (and Does It Matter)?, The Columbia Law 
School Blue Sky Blog (May 5, 2016), available at
 http://clsbluesky.law.columbia.edu/2016/05/05/the-ever-
expanding-10-k-why-are-10-ks-getting-so-much-longer-and-does-it-matter/  (reporting the results of a study of 
Form 10-Ks filed between 1996 and 2013 and finding that the length of Form10-K has more than doubled in 
word length, with forward-looking risk factor disclosures being one of three substantial reasons for this 
increase, and contributing to Form 10-Ks becoming more redundant and complex). 
251
  See Anne Beatty et al., Sometimes Less is More: Evidence from Financial Constraints Risk Factor Disclosures, 
Mar. 2015, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2186589.  To examine the 
“informativeness” of risk factor disclosures, the authors of this study analyzed risk factor disclosures about 
financial constraints and argue that as litigation risk increased during and after the 2008 financial crisis, 
registrants were more likely to disclose immaterial risks, resulting in a deterioration of disclosure quality. 
252
  See, e.g., Plain English Disclosure, Release No. 33-7497 (Jan. 28, 1998) [63 FR 6370 (Feb. 6, 1998)] (“Plain 
English Disclosure Adopting Release”).  See also Updated Staff Legal Bulletin No. 7: Plain English Disclosure 
(June 7, 1999), available at https://www.sec.gov/interps/legal/cfslb7a.htm.  

67 
 
generic risks.  Registrants often disclose risk factors that are similar to those used by others in 
their industry without tailoring the disclosure to their circumstances and particular risk profile. 
To address these concerns, we are proposing the following three amendments to the 
Item 105 risk factor disclosure requirement. 
1. Require summary risk factor disclosure if the risk factor section 
exceeds 15 pages  
As a way of addressing the length of risk factor disclosure, the Commission has 
previously considered requiring a page limit for risk factor disclosure.
253
  However, the 
Commission has not adopted such a requirement to date in light of comments received in 
response to prior initiatives.  For example, while the Concept Release did not seek specific 
feedback on reducing or limiting the length of risk factor disclosure, several commenters 
nonetheless opposed a page limit.
254
  Commenters attributed the growing length of risk factor 
disclosure to the risk of litigation associated with failing to disclose risks if events turn 
negative.
255
  Commenters also stated that many companies will continue to disclose generic risks 
unless assured that litigation will not result from the failure to do so.
256
  Similar comments were 
received in response to the general solicitation of comment on the Disclosure Effectiveness 
Initiative.
257
 
                                                 
253
   For example, as part of the Plain English Disclosure rulemaking, the Commission solicited comment on 
whether to limit risk factor disclosure to a specific number of risk factors or a specific number of pages.  See 
Plain English Disclosure, Release No. 33-7380 (Jan. 14, 1997), [62 FR 3152, 3163 (Jan. 21, 1997)].  The 
Commission ultimately did not adopt such limits on risk factor disclosure in that rulemaking.  See Plain English 
Disclosure Adopting Release, 63 FR at 6372. 
254
  See letters from ACC, API, Chevron, CAQ, PNC, Wilson Sonsini, Maryland Bar Securities Committee, PWC, 
CalPERS, Four Twenty Seven, Fenwick, and NYSSCPA.  
255
  See letters from Wilson Sonsini, Maryland State Bar, and PNC. 
256
  See id. 
257
  See, e.g., letter from The Society of Corporate Secretaries and Governance Professionals (Sept. 10, 2014) 
[Disclosure Effectiveness letter] (referencing the Commission’s proposal to limit the number of risk factors 

68 
 
The Concept Release sought input on whether to require summary risk factor disclosure 
in addition to complete risk factor disclosure and whether highlighting information in a summary 
would help investors better understand a registrant’s risks.
258
  Several commenters opposed 
summary risk factor disclosure, stating that a summary would not add value and would result in 
repetition of disclosure.
259
  Further, some commenters noted that registrants provide headings 
before each specific risk factor, which effectively act as a summary.
260
  Some commenters 
specified that a summary should be encouraged but not required.
261
  
Given the increasing length of risk factor disclosure and after considering the comments 
received, we propose to amend Item 105 to require summary risk factor disclosure if the risk 
factor section exceeds 15 pages.
262
  Lengthy risk factor disclosure and the inclusion of many 
general risks add to the complexity of disclosure documents, without necessarily providing 
additional meaningful information to investors.  When registrants provide risk disclosure that 
exceeds 15 pages, we propose to require registrants to provide summary risk factor disclosure in 
the forepart of the prospectus or annual report, as applicable, under an appropriately captioned 
                                                                                                                                                             
included in a filing in connection with the Commission’s Plain English initiative and comments received in 
connection with that initiative, and quoting approvingly from the letter from the Committee on Securities 
Regulation of the Business Law Section of the New York State Bar Association (Mar. 21, 1997), available at 
http://www.sec.gov/rules/proposed/s7397/gutman1.htm, that “no issuer should ever be put in the position of 
choosing significant material risks in order to satisfy a numerical limitation”). 
258
  See Concept Release, supra note 6.  Item 3(b) to Form S-11 includes such a requirement, stating that “[w]here 
appropriate to a clear understanding by investors, an introductory statement shall be made in the forepart of the 
prospectus, in a series of short, concise paragraphs, summarizing the principal factors which make the offering 
speculative.”  See 17 CFR 239.18.  The risk factor summary included in a Form S-11 filing typically consists of 
a series of bulleted or numbered statements comprising no more than one page on average. 
259
  See letters from SIFMA, Fenwick, NIRI, and General Motors. 
260
  See letters from SIFMA, Fenwick, and General Motors. 
261
  See letters from E&Y and Deloitte. 
262
   Commission staff reviewed a representative sample of filings to help determine the proposed threshold.  See 
infra Section IV, note 314. 

69 
 
heading.  The summary would consist of a series of short, concise, bulleted or numbered 
statements summarizing the principal factors that make an investment in the registrant or 
offering speculative or risky.  The proposed 15-page threshold may provide registrants with an 
incentive to limit the length of their risk factor disclosure.  We estimate that a 15-page threshold 
would affect approximately 40 percent of current filers.
263
   If registrants determine that it is 
appropriate to provide risk factor disclosure that exceeds 15 pages, summary risk factor 
disclosure highlighted in the forepart of the document should enhance the readability and 
usefulness of this disclosure for investors.  We believe that this approach would appropriately 
balance the need to provide more focused disclosure about a registrant’s risk profile with the 
concerns raised by commenters about imposing page limits on risk factor disclosure. 
2. Replace the requirement to disclose the “most significant” factors 
with the “material” factors 
 
Since the Commission first published guidance on risk factor disclosure in 1964,
264
 it has 
underscored that risk factor disclosure should be focused on the “most significant” or “principal” 
factors that make a registrant’s securities speculative or risky.
265
  Notwithstanding this additional 
guidance, the length of risk factor disclosure and the number of risks disclosed has increased in 
recent years.
266
 
We are proposing to update Item 105 to replace the requirement to discuss the “most 
significant” risks with “material” risks.  Securities Act Rule 405 defines “material” as follows: 
                                                 
263
  See infra Section IV.B.2. 
264
  See Guides for Preparation and Filing of Registration Statements, Release No. 33-4666 (Feb. 7, 1964) [29 FR 
2490 (Feb. 15, 1964)] (“1964 Guides”).   
265
   “Principal” was the term used in the 1982 Integrated Disclosure Adopting Release and “most significant” was 
the term used in the Plain English Disclosure Adopting Release.   
266
  See supra notes 250 and 251 and accompanying text. 

70 
 
The term material, when used to qualify a requirement for the furnishing of information 
as to any subject, limits the information required to those matters to which there is a 
substantial likelihood that a reasonable investor would attach importance in determining 
whether to purchase the security.
267
 
We propose revising the standard for disclosure from the “most significant” risks to “material” 
risks to focus registrants on disclosing the risks to which reasonable investors would attach 
importance in making investment decisions.  We believe that this approach could result in risk 
factor disclosure that is more tailored to the particular facts and circumstances of each registrant, 
which would reduce the amount of risk factor disclosure that is not material and potentially 
shorten the length of the risk factor discussion, to the benefit of both investors and registrants.
268
 
3. Require registrants to organize risk factors under relevant headings 
 
Since 1964, the Commission has periodically emphasized the importance of organized 
and concise risk factor disclosure.
269
  The Concept Release solicited feedback on the ways in 
which we could improve the organization of registrants’ risk factor disclosure to help investors 
better navigate the disclosure.
270
  Several commenters supported grouping similar risks 
together,
271
 with one commenter noting that the current organizational structure, and not the 
                                                 
267
   17 CFR 230.405.  Exchange Act Rule 12b-2 defines materiality similarly:  “The term ‘material,’ when used to 
qualify a requirement for the furnishing of information as to any subject, limits the information required to those 
matters to which there is a substantial likelihood that a reasonable investor would attach importance in 
determining whether to buy or sell the securities registered.”  12 CFR 240.12b-2 (emphasis added). 
268
  For a discussion of the potential economic effects of switching from a “most significant” risks to a “material 
risks” disclosure standard, including the possibility that the change could result in either more or less expansive 
disclosure, see infra Section IV.B.2.iv.  
269
  See 1964 Guides, supra note 264; 1982 Integrated Disclosure Adopting Release, supra note 9; and Securities 
Offering Reform, Release No. 33-8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)]. 
270
  See Concept Release, supra note 6. 
271
  See letters from PNC, Fenwick, and Wilson Sonsini. 

71 
 
length, of risk factor disclosure, should be the primary concern.
272
  As stated above, some 
commenters noted that registrants often provide headings before each specific risk factor,  which 
act as a summary.
273
  Further, one commenter noted that the grouping of related risk factors 
together under subheadings for clarity is a best practice currently used by many registrants as 
risk factors have lengthened.
274
   
The Concept Release also solicited comment on whether generic risk factors are 
important to investors and if not, how to discourage this disclosure.
275
  As noted above, several 
commenters discussed the importance of including both specific and generic risk disclosures.
276
  
One of these commenters supported revising the current text of Item 105 to eliminate the 
proscription against including “risks that could apply to any issuer or offering.”
277
  In contrast, 
many commenters opposed inclusion of generic risk factors.
278
   
We are proposing to require registrants to organize their risk factor disclosure under 
relevant headings in an effort to help readers comprehend lengthy risk factor disclosures.  As 
noted above, many registrants already do this and we believe that further organization within risk 
factor disclosure will improve the effectiveness of the disclosures.  In addition, if a registrant 
                                                 
272
  See letter from Wilson Sonsini. 
273
  See letters from SIFMA, Fenwick, and General Motors. 
274
  See letter from Fenwick. 
275
  See Concept Release, supra note 6. 
276
  See letters from E&Y, Maryland Bar Securities Committee, and CalPERS (refuting the notion that generic and 
boilerplate risk factors cannot impart material information); see also letter from NYSSCPA (stating that generic 
and boilerplate risk factors should be included if critical to the overall understanding of a registrant’s business 
environment). 
277
  See letter from E&Y. 
278
  See letters from EEI and AGA, Investment Program Association (July 21, 2016), NAREIT, Better Markets 
(July 21, 2016), Davis, Fenwick, Reardon, NIRI, Financial Services Roundtable, Shearman and A. Radin. 

72 
 
chooses to disclose a risk that could apply to other companies or securities offerings and the 
disclosure does not provide an explanation of why the identified risk is specifically relevant to an 
investor in its securities, we are proposing to require the registrant to disclose such risk factors at 
the end of the risk factor section under the caption “General Risk Factors.” 
Request for Comment 
35. Would our proposed approach to Item 105 result in improved risk factor disclosure 
for investors? 
36. Would our proposal to require summary risk factor disclosure if the risk factor 
discussion exceeds 15 pages result in improved risk factor disclosure for investors? 
37. Is 15 pages an appropriate number of pages to trigger summary risk factor disclosure?  
If not, what is the appropriate page limit that should trigger summary risk factor 
disclosure?  Is there a better alternative than a page limit to trigger summary risk 
factor disclosure (e.g., should we consider a word limit instead)? 
38. If summary risk factor disclosure is triggered, should we require the summary to 
consist of a series of short, concise, bulleted or numbered statements summarizing the 
principal factors that make an investment in the registrant or offering speculative or 
risky, as proposed?  Should we in addition or instead limit the length of the summary 
disclosure (e.g., no more than one page)?  Should we require the bulleted or 
numbered statements summarizing the risk factors to also include hyperlinks to each 
of the risk factors summarized? 
39.  If the risk factors discussion exceeds 15 pages, should we require a registrant to 
include only those risk factors that pose the greatest risk to the registrant in the first 
15 pages instead of requiring it to prepare a risk factor summary?  

73 
 
40. Should we specify that registrants should present summary risk factor disclosure in 
the forepart of the prospectus or annual report, as proposed?  Alternatively, should the 
summary immediately precede the full discussion of risk factors?  Currently, when 
the risk factor discussion is included in a registration statement, it must immediately 
follow the summary section.  Should registrants be permitted to provide the full 
discussion of risk factors elsewhere in the document to enhance readability when a 
summary section is included? 
41. Would changing the standard from the requirement to discuss the “most significant” 
factors to the “material” factors, as proposed, result in more tailored disclosure and 
reduce the length of the risk factor disclosure?  Would changing the standard, as 
proposed, result in other consequences that we have not considered?  If so, provide 
specific examples of such consequences. 
42. Would our proposal that registrants organize their risk factors under relevant headings 
improve disclosures for investors? 
43. Should we require registrants to prioritize the order in which they discuss their risk 
factors so that the risk factors that pose the greatest risk to the registrant are discussed 
first?  Would this improve disclosures for investors or be unduly burdensome for 
registrants?   
44. If the registrant discloses generic risk factors, should the registrant be required to 
disclose them at the end of the risk factor section, and caption them as General Risk 
Factors, as proposed?   

74 
 
45. Should we require registrants to explain how generic, boilerplate risk factors are 
material to their investors, and what, if anything, management does to address these 
risks? 
46. Foreign private issuers that file their Exchange Act annual reports on Form 20-F must 
provide risk factor disclosure as required by that Form whereas foreign private issuers 
that file registration statements on Forms F-1, F-3,   and F-4 must provide risk factor 
disclosure pursuant to Item 105.  Currently Form 20-F does not require a summary of 
the risk factors if the risk factor disclosure exceeds a certain page limit, does not state 
that material risks should be disclosed, and does not require the presentation of risk 
factors, including generic risk factors, under appropriate headings.  Should we amend 
Form 20-F to include any or all of the proposed risk factor disclosure provisions 
under Item 105?  If we do not similarly amend risk factor disclosure under Form 20-
F, would having one set of risk factor disclosure requirements for Form 20-F annual 
reports and another set for registration statements on Forms F-1, F-3, and F-4 cause 
confusion for registrants or investors? 
47. How might we further improve risk factor disclosure? 
GENERAL REQUEST FOR COMMENTS III. 
We request and encourage any interested person to submit comments on any aspect of 
our proposals, other matters that might have an impact on the proposed amendments, and any 
suggestions for additional changes.  With respect to any comments, we note that they are of 
greatest assistance to our rulemaking initiative if accompanied by supporting data and analysis of 
the issues addressed in those comments and by alternatives to our proposals where appropriate. 
ECONOMIC ANALYSIS IV. 
This section analyzes the expected economic effects of the proposed amendments relative 

75 
 
to the current baseline, which consists of both the regulatory framework of disclosure 
requirements in existence today and the current use of such disclosure by investors.  As 
discussed above, we propose amendments to modernize and simplify the description of business 
(Item 101), legal proceedings (Item 103), and risk factor (Item 105) disclosure requirements in 
Regulation S-K.
279
  An important objective of the proposed amendments is to revise Items 
101(a), 101(c), and 105 to be more principles-based.  Overall, investors and registrants may 
benefit from the proposed principles-based approach if the existing prescriptive requirements 
result in disclosure that is not material to an investment decision and is costly to provide.  We 
acknowledge the risk that emphasizing a principles-based approach and granting registrants more 
flexibility to determine what and how much disclosure about a topic to provide may result in the 
elimination of some information to investors.  However, we believe that any such loss of 
information would be limited given that, under the proposed principles-based approach, 
registrants still would be required to provide disclosure about these topics if they are material to 
the business. 
We are sensitive to the costs and benefits of these amendments.  The discussion below 
addresses the potential economic effects of the proposed amendments, including the likely 
benefits and costs, as well as the likely effects on efficiency, competition, and capital 
                                                 
279
  While Items 101, 103 and 105 have not undergone significant revisions in over thirty years, many characteristics 
of the registrants have changed substantially over this time period.  For example, in 1988, the largest 500 U.S. 
companies in Standard & Poor’s Compustat database had an average market capitalization of $4.27 billion, 
foreign income of $281 million, and ratio of intangible assets to market capitalization of 8.44%.  The largest 100 
companies had an average market capitalization of $12.25 billion, foreign income of $730 million, and ratio of 
intangible assets to market capitalization of 7.07%.  In 2018, the largest 500 companies had an average market 
capitalization of $49.10 billion, foreign income of $1.70 billion, and ratio of intangible assets to market 
capitalization of 29.70%.  The largest 100 companies had an average market capitalization of $ 141.46 billion, 
foreign income of $5.18 billion, and ratio of intangible assets to market capitalization of 32.62%.  There is also 
significant turnover among the largest companies: approximately 34% of top 50 companies in 1988 were still in 
the top 50 companies on 2018.  We believe that certain of the proposed amendments (the disclosure of the 
material effects of compliance with material government regulations, including foreign government regulations) 
would provide investors with information consistent with the changing nature of the registrants.  

76 
 
formation.
280
  At the outset, we note that, where possible, we have attempted to quantify the 
benefits, costs, and effects on efficiency, competition, and capital formation expected to result 
from the proposed amendments.  In many cases, however, we are unable to quantify the 
economic effects because we lack information necessary to provide a reasonable estimate.  For 
example, we are unable to quantify, with precision, the costs to investors of utilizing alternative 
information sources under each disclosure item and the potential information processing cost 
savings that may arise from the elimination of disclosures not material to an investment decision. 
A. Baseline and Affected Parties 
Our baseline includes the current disclosure requirements under Items 101, 103, and 105 
of Regulation S-K, which apply to registration statements, periodic reports, and certain proxy 
statements filed with the Commission.  Thus, the parties that are likely to be affected by the 
proposed amendments include investors and other users of registration statements and periodic 
reports, and proxy statements, such as financial analysts, as well as registrants subject to 
Regulation S-K. 
The proposed amendments affect both domestic issuers and foreign private issuers
281
 that 
file on domestic forms
282
 and foreign private issuers that file on foreign forms.
283
  We estimate 
                                                 
280
   Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] 
require the Commission, when engaging in rulemaking where it is required to consider or determine whether an 
action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition, and capital formation.  Further, Section 23(a)(2) of the 
Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission, when making rules under the Exchange Act, to 
consider the impact that the rules would have on competition, and prohibits the Commission from adopting any 
rule that would impose a burden on competition not necessary or appropriate in furtherance of the Exchange 
Act.  
281
  See supra note 24 for the definition of foreign private issuer.   
282
  The number of issuers that file on domestic forms is estimated as the number of unique issuers, identified by 
Central Index Key (CIK), that filed Forms 10-K and 10-Q, or an amendment thereto, with the Commission 
during calendar year 2018.  We believe that these filers are representative of the registrants that would primarily 
be affected by the proposed amendments.  For purposes of this economic analysis, these estimates do not 
include issuers that filed only initial domestic Securities Act registration statements during calendar year 2018, 

77 
 
that approximately 6,919 registrants filing on domestic forms
284
 and 393 foreign private issuers 
filing on foreign forms would be affected by the proposed amendments.  Among the registrants 
that file on domestic forms, approximately 29 percent are large accelerated filers, 19 percent are 
accelerated filers, 19 percent a re non-accelerated filers, and 33 percent are smaller reporting 
companies.  In addition, we estimate that approximately 21.3 percent of domestic issuers are 
emerging growth companies.
285
 
B. Potential Costs and Benefits 
In this section, we discuss the anticipated economic benefits and costs of the proposed 
amendments.  We first analyze the overall economic effects of shifting toward a more principles-
based approach to disclosure, which is one of the main objectives of the proposed amendments.  
We then discuss the potential costs and benefits of specific proposed amendments. 
1. Principles-Based versus Prescriptive Requirements 
                                                                                                                                                             
and no Exchange Act reports, in order to avoid including entities, such as certain co-registrants of debt 
securities, which may not have independent reporting obligations and therefore would not be affected by the 
proposed amendments.  Nevertheless, the proposed amendments would affect any registrant that files a 
Securities Act registration statement and assumes Exchange Act reporting obligations.  We believe that most 
registrants that have filed a Securities Act registration statement, other than the co-registrants described above, 
would be captured by this estimate through their Form 10-K and Form 10-Q filings.  The estimates for the 
percentages of smaller reporting companies, accelerated filers, large accelerated filers, and non-accelerated 
filers are based on data obtained by Commission staff using a computer program that analyzes SEC filings, with 
supplemental data from Ives Group Audit Analytics.
 
283
   The number of affected issuers that file foreign forms is estimated as the number of unique companies, 
identified by Central Index Key (CIK), that filed Forms F-1, F-3, and F-4, or an amendment thereto with the 
Commission during calendar year 2018.  See also supra note 24. 
284
  This number includes fewer than 25 foreign issuers that file on domestic forms and approximately 100 business 
development companies.  
 
285
   An “emerging growth company” is defined as an issuer that had total annual gross revenues of less than $1.07 
billion during its most recently completed fiscal year.  See 17 CFR 230.405 and 17 CFR 240.12b-2.  See Rule 
405; Rule 12b-2; 15 U.S.C. 77b(a)(19); 15 U.S.C. 78c(a)(80); and Inflation Adjustments and Other Technical 
Amendments under Titles I and II of the JOBS Act, Release No. 33- 10332 (Mar. 31, 2017) [82 FR 17545 (Apr. 
12, 2017)].  We based the estimate of the percentage of emerging growth companies on whether a registrant 
claimed emerging growth company status, as derived from Ives Group Audit Analytics data. 

78 
 
Prescriptive requirements employ bright-line, quantitative thresholds to identify when 
disclosure is required, or require registrants to disclose the same types of information.  
Principles-based requirements, on the other hand, provide registrants with the flexibility to 
determine (i) whether certain information is material, and (ii) how to disclose such information. 
In this release, we propose to revise Items 101(a), 101(c), and 105 to be more principles 
based.
286
  Principles-based requirements may result in more or less detail than prescriptive 
requirements, which set forth explicit criteria for disclosure.  The economic effects of replacing a 
prescriptive requirement with a more principles-based disclosure standard based on materiality 
depend on a variety of factors, including the preferences of investors, the compliance costs of 
producing the disclosure and the nature of the information to be disclosed. 
For certain existing disclosure requirements, shifting to a more principles-based approach 
could benefit issuers with no loss of investor protection because the current requirements 
occasionally result in some disclosure that is immaterial to an investment decision and costly for 
issuers to provide.  Elimination of disclosure that is not material could reduce compliance 
burdens and potentially benefit investors, to the extent it improves the readability and 
conciseness of the information provided.
287
  In addition, a principles-based approach may permit 
                                                 
286
   Although Items 101(c) and Item 105 use a principles-based approach, based on comments received on prior 
initiatives, it appears that some registrants may view these items as imposing prescriptive requirements.  See 
supra Sections II.B and II.D.  Therefore, we are proposing amendments to emphasize the principles-based 
approach of these items.  
287
  See A. Lawrence, Individual Investors and Financial Disclosure, 56 J. Acct. & Econ., 130−147 (2013).  Using 
data on trades and portfolio positions of 78,000 households, this article shows that individuals invest more in 
firms with clear and concise financial disclosures.  This relation is reduced for high frequency trading, 
financially-literate, and speculative individual investors.  The article also shows that individuals’ returns 
increase with clearer and more concise disclosures, implying such disclosures reduce individuals’ relative 
information disadvantage.  A one standard deviation increase in disclosure readability and conciseness 
corresponds to return increases of 91 and 58 basis points, respectively.  The article acknowledges that, given the 
changes in financial disclosure standards and the possible advances in individual investor sophistication, the 
extent to which these findings, which are based on historical data from the 1990s, would differ from those today 
is unknown.  Recent advances in information processing technology, such as machine learning for textual 
analysis, may also affect the generalizability of these findings. 

79 
 
or encourage registrants to present more tailored information, which also may benefit 
investors.
288
 
On the other hand, shifting to a more principles-based approach may result in the 
elimination of disclosure material to an investment decision if issuers misjudge what information 
is material.
289
  To the extent that prescriptive requirements result in more complete disclosures, 
such requirements could benefit investors by reducing information asymmetry.  Reducing 
information asymmetry may also benefit registrants by improving stock market liquidity and 
decreasing cost of capital.
290
  Further, prescriptive standards could enhance the comparability and 
verifiability of information.
291
  We acknowledge, however that differences between principles-
                                                 
288
   A number of academic studies have explored the use of prescriptive thresholds and materiality criteria.  Many 
of these papers highlight a preference for principles-based materiality criteria.  See, e.g. Eugene A. Imhoff Jr. 
and Jacob K. Thomas, Economic consequences of accounting standards: The lease disclosure rule change, 10.4 
J. Acct. & Econ. 277-310 (1988) (providing evidence that management modifies existing lease agreements to 
avoid crossing rules-based criteria for lease capitalization); Cheri L. Reither, What are the best and the worst 
accounting standards?, 12.3 Acct. Horizons 283 (1998) (documenting that due to the widespread abuse of 
bright-lines in rules for lease capitalization, SFAS No. 13 was voted the least favorite FASB standard by a 
group of accounting academics, regulators, and practitioners); Christopher P. Agoglia, Timothy S. Doupnik, and 
George T. Tsakumis. Principles-based versus rules-based accounting standards: The influence of standard 
precision and audit committee strength on financial reporting decisions, 86.3 The Acct. Rev. 747-767 (2011) 
(conducting experiments in which experienced financial statement preparers are placed in a lease classification 
decision context and finding that preparers applying principles-based accounting are less likely to make 
aggressive reporting decisions than preparers applying a more precise rules-based standard and supporting the 
notion that a move toward principles-based accounting could result in better financial reporting); Usha
 
Rodrigues and Mike Stegemoller, An inconsistency in SEC disclosure requirements? The case of the 
“insignificant” private target, 13.2-3 J. Corp. Fin. 251-269 (2007) (providing evidence, in the context of 
mergers and acquisitions, where rule-based thresholds deviate from investor preferences).  Papers that highlight 
a preference for rules-based materiality criteria are cited below. 
289
  The presence of other controls, including accounting controls, likely reduces the risk that issuers will misjudge 
what information is material. 
290
  See, e.g., C. Leuz and P. Wysocki, The Economics of Disclosure and Financial Reporting Regulation:  
Evidence and Suggestions for Future Research, 54.2 Journal of Accounting Research 525-622 (2016) 
(surveying the empirical literature on the economic consequences of disclosure and discussing potential capital‐
market benefits from disclosure and reporting, such as improved market liquidity and decreased cost of capital). 
291
  See Mark W. Nelson, Behavioral evidence on the effects of principles-and rules-based standards, 17.1 
Accounting Horizons 91-104 (2003); and Katherine
 Schipper, Principles-based accounting standards, 17.1 
Accounting Horizons 61-72 (2003) (noting potential advantages of rules-based accounting standards, including: 
increased comparability among firms, increased verifiability for auditors, and reduced litigation for firms).  See 
also Randall Rentfro and Karen Hooks, The effect of professional judgment on financial reporting 
comparability, 1 Journal of Accounting and Finance Research 87-98 (2004) (finding that comparability in 

80 
 
based standards and prescriptive standards have been studied in the accounting context.  These 
differences may be narrower in the context of the proposed amendments due to the qualitative 
nature of the disclosures in Items 101(a), 101(c), and 105.  Prescriptive requirements also may be 
easier to apply, saving registrants the costs associated with materiality assessments.  
Some of the costs of shifting to a more principles-based approach could be mitigated by 
external disciplines, such as the Commission staff’s filing review program.  In addition, 
registrants would remain subject to the antifraud provisions of the securities laws.
292
  There also 
may be incentives for registrants to voluntarily disclose additional information if the benefits of 
reduced information asymmetry exceed the disclosure costs.  
Differences between the principles-based and prescriptive approaches are likely to vary 
across registrants, investors, and disclosure topics.  Despite potential costs associated with 
materiality assessments, replacing prescriptive requirements with principles-based requirements 
is likely to reduce compliance costs because registrants would have the flexibility to determine 
whether certain information is material under the principles-based approach.  To the extent the 
principles-based approach reduces compliance costs, the cost reduction should be more 
beneficial to smaller registrants that are financially constrained.  Although eliminating 
information that is not material should benefit all investors, it could benefit retail investors more 
since they are less likely to have the time and resources to devote to reviewing and evaluating 
disclosure.  At the same time, smaller registrants with less established reporting histories may be 
                                                                                                                                                             
financial reporting may be reduced under principles-based standards, which rely more heavily on the exercise of 
professional judgment but comparability may improve as financial statement preparers become more 
experienced and hold higher organizational rank); Andrew A. Acito, Jeffrey J. Burks, and W. Bruce Johnson, 
The Materiality of Accounting Errors: Evidence from SEC Comment Letters, 36.2 Contemp. Acct. Res. 839, 
862 (2019) (studying managers’ responses to SEC inquiries about the materiality of accounting errors and 
finding that managers are inconsistent in their application of certain qualitative considerations and may omit 
certain qualitative considerations from their analysis that weigh in favor of an error’s materiality).   
292
  See, e.g., Exchange Act Rule 10b-5(b) [17 CFR 240.10b-5(b)]. 

81 
 
the most at risk of persistent information asymmetries if the principles-based approach results in 
loss of information material to investors.  In the event of loss of material information (the risk of 
which, as noted above, is offset by mitigants including accounting controls and the antifraud 
provisions of the securities laws), r  etail investors in these registrants may be more affected than 
institutional investors because obtaining information from alternative sources could involve 
monetary costs, such as database subscriptions, or opportunity costs, such as time spent 
searching for alternative sources, and these costs may fall more heavily on retail investors than 
on institutional investors. 
Across different disclosure topics, the principles-based approach may be more 
appropriate for topics where the relevant information tends to vary greatly across companies 
because, in these situations, the more standardized prescriptive requirements are less likely to 
elicit information that is tailored to a specific company.  A principles-based approach may also 
be more appropriate for disclosures that are episodic in nature since investors may derive 
relatively less value from comparisons of such disclosure for a given registrant over time.  In 
addition, registrants may derive relatively less benefit from applying a standardized prescriptive 
approach to episodic disclosures, which may be less amenable to routinized reporting than 
periodic disclosures of information that arise on a regular basis. 
2. Benefits and Costs of Specific Proposed Amendments 
 We expect the proposed amendments would result in costs and benefits to registrants and 
investors, and we discuss those costs and benefits qualitatively, item by item, in this section.  The 
proposed changes to each item would impact the compliance burden for registrants in filing 
particular forms.  Overall, we expect the net effect of the proposed amendments on a registrant’s 
compliance burden to be limited.  The quantitative estimates of changes in those burdens for 

82 
 
purposes of the Paperwork Reduction Act are further discussed in Section V.  As explained in 
the item-by-item discussion of the proposed amendments in this section, we expect certain 
aspects of the proposed amendments to increase compliance burdens, while others are expected 
to decrease the burdens.  Taken together, we estimate that the proposed amendments are likely to 
result in a net decrease of between three and five burden hours per form for purposes of the 
Paperwork Reduction Act.
293
 
   i. General Development of Business (Item 101(a)) 
Item 101(a) requires a description of the general development of the registrant’s business, 
such as the year in which the registrant was organized and the nature and results of any merger of 
the registrant or its significant subsidiaries.  Some academic research has found that information 
required under Item 101(a) is relevant to firm value.  For example, the registrant’s age can 
predict its growth rates
294
 and corporate innovation.
295
  Merger activities can affect shareholder 
value and predict future performance.
296
  Given the relevance of such information to firm value, 
and thus investors, the effects of the proposed amendments to Item 101(a) on investors would 
                                                 
293
     See infra Section V.B. 
294
  See David S. Evans, The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing 
Industries, 35 J. Indus. Econ. 567-81 (1987) (finding that firm growth decreases with both firm size and age). 
See also C. Arkolakis, T. Papageorgiou, and O. A. Timoshenko, Firm Learning and Growth, 27 Rev. Econ. 
Dyn. 146–168 (2018) (developing a theoretical model showing that firm growth rates decrease with firm age 
and calibrating the model using plant-level data). 
295
  See Elena Huergo and Jordi Jaumandreu, How Does Probability of Innovation Change with Firm Age?, 22 
Small Bus. Econ. 193-207 (2004) (finding that, as a firm’s age increases, the innovation rate diminishes and 
attributing this finding to the rapid innovation necessary for a firm to compete when entering a market);  A. 
Coad, A. Segarra, and M. Teruel, Innovation and Firm Growth: Does Firm Age Play a Role?, 45 Res. Policy 
387-400 (2016) (finding that young firms undertake riskier innovation and receive larger benefits from R&D).  
296
  See Sara B. Moeller, Frederik P. Schlingemann, and Rene M. Stulz, Wealth Destruction on a Massive Scale? A 
Study of Acquiring-Firm Returns in the Recent Merger Wave, 60 J. Fin. 757-82 (2005) (finding that, although 
small gains were made in the 1980s, investors experienced negative gains from 1998 to 2001, and firms that 
announce acquisitions with large dollar losses performed poorly afterwards).  See also Ran Duchin and Breno
 
Schmidt, Riding the Merger Wave: Uncertainty, Reduced Monitoring, and Bad Acquisitions, 107 J. Fin. Econ. 
69-88 (2013) (finding that the average long-term performance of acquisitions initiated during merger waves is 
significantly worse than those initiated off the waves).  

83 
 
depend on whether they result in more concise
297
 and material disclosures of business 
development information under Item 101(a). 
We propose to revise the requirements in Item 101(a) to be more principles based, 
requiring disclosure of information material to an understanding of the general development of 
the registrant’s business.  The shift to a more principles-based approach for these requirements 
would give rise to the potential economic effects discussed in Section IV.B.1 above. 
Currently, Item 101(a) requires registrants to describe their business development during 
the past five years, or such shorter period as the registrant may have engaged in business.  We 
propose to eliminate the prescribed five-year timeframe for this disclosure.  Eliminating this 
specific requirement would provide registrants with flexibility to choose a different timeframe 
that is more relevant in describing their business development to investors.  For example, a long 
timeframe might be less appropriate for registrants operating in rapidly changing environments 
where historical information becomes irrelevant in a short period of time.  Given that registrants 
have the flexibility to determine the appropriate timeframe, this proposed amendment is likely to 
reduce compliance costs.  Investors may also benefit if the timeframe chosen by the registrants is 
more consistent with their preferences than the prescribed five-year timeframe, but may be 
harmed if the timeframe chosen by the registrants is less consistent with their preferences than 
the prescribed five-year timeframe. 
Currently, Item 101(a) requires registrants to describe their business development in 
registration statements and annual reports.  For filings subsequent to the initial registration 
statement, we propose revising Item 101(a)(1) to require only an update of this disclosure with 
an active hyperlink to the registrant’s most recently filed disclosure that, together with the 
                                                 
297
   Investors may benefit from more concise disclosure that facilitates their ability to focus on information material 
to an investment decision.  See supra note 286 for details. 

84 
 
update, would present a complete discussion of the general development of its business.
298
  If 
duplicative disclosure distracts investors from other important information, the proposal may 
benefit investors by highlighting material developments in the reporting period.  However, to the 
extent that historical information would be available through hyperlinking as opposed to being in 
the same filing, investors would have to spend more time to retrieve the information from 
another disclosure document.  Because the proposed provisions would involve the use of only 
one hyperlink, we believe the increase in retrieval costs for investors would be minimal.  While 
registrants may incur minimal compliance costs to include hyperlinks, we believe registrants 
would benefit from the proposal due to the reduction in costs to disclose duplicative information. 
We propose to amend Item 101(a) to provide a non-exclusive list of topics that should be 
disclosed if material.  Providing potential disclosure topics should clarify the requirements and 
avoid potential confusion among registrants.  Besides items currently required under Item 101(a), 
the proposed topics also include material changes to a registrant’s previously disclosed business 
strategy, which is not currently required to be disclosed.  Since several studies have found that 
business strategy is a critical determinant of corporate success
299
 and an essential component of 
business model design,
300
 investors may benefit from any increase in the disclosure of material 
                                                 
298
   A registrant would be required to incorporate by reference the earlier disclosure into the updated filing.  See 
supra Section II.A.2.  We are also proposing to permit a smaller reporting company, for filings other than initial 
registration statements, to provide an update to the general development of the business disclosure, instead of a 
full discussion, that complies with proposed Item 101(a)(2), including the proposed hyperlink requirement.   
299
  See Jay B. Barney, Strategic Factor Markets: Expectations, Luck, and Business Strategy 32 Mgmt. Sci. 1231-41 
(1986) (suggesting that strategies focusing on creating imperfectly competitive product markets may not 
generate superior performance if the cost of implementing such strategies is high, and that strategic choices 
should flow mainly from the analysis of its antecedent unique skills and capabilities, rather than from the 
analysis of its competitive environment).  See also T. Ritter and H. G. Gemunden, The Impact Of A Company’s 
Business Strategy on Its Technological Competence, Network Competence and Innovation Success, 57(5) J. 
Bus. Res. 548-556 (2004) (finding that a company’s innovation success is positively correlated with the strength 
of its technology-oriented business strategy). 
300
  See David J. Teece, Business Models, Business Strategy and Innovation, 43 Long Range Plan. 172-94 (2009)  
(examining the significance of business models and explorings their connections with business strategy, 

85 
 
changes to previously disclosed business strategies.  Since we are not proposing to make the 
disclosure of business strategy mandatory if a registrant has not previously disclosed its business 
strategy, the costs of revealing proprietary information that could be harmful to registrants’ 
competitive positions should be somewhat limited. 
Overall, investors and registrants may benefit from the proposed amendments to Item 
101(a) if the existing requirements elicit disclosure that is not material to an investment decision 
and/or is more costly to provide.  However, granting registrants additional flexibility to 
determine (i) whether certain information is material, and (ii) how to disclose such information 
may result in the elimination of information in cases in which issuers stop disclosing information 
material to an investment decision. 
   ii. Narrative Description of Business (Item 101(c)) 
Item 101(c) requires a narrative description of the registrant’s business.  The current 
requirement identifies twelve specific items that must be disclosed to the extent material to an 
understanding of the registrant’s business taken as a whole.  We propose to revise the 
requirements in Item 101(c) to be more clearly principles based.  The proposed amendments 
would require a description of the business and would set forth seven non-exclusive examples of 
information to be disclosed if material to an understanding of the business.  These examples 
include some, but not all, of the topics currently required under Item 101(c) as well as some 
additional topics.  Emphasizing a principles-based approach to Item 101(c) would give rise to the 
potential economic effects discussed in Section I.B.1 above.  In addition, eliminating prescriptive 
                                                                                                                                                             
innovation management, and economic theory).  See also P. Spieth, D. Schneckenberg, K. Matzler, Exploring 
the Linkage between Business Model (&) Innovation and the Strategy of the Firm, 46 R&D Mgmt. 403-413 
(2016) (examining firm strategy-business model linkage and exploring the role of business model innovation as 
analytic perspective for identifying sources of firm performance). 

86 
 
requirements for certain items, such as the number of employees, may diminish comparability 
across firms. 
The topics that would be retained as examples under the proposed amendments are: 
(1) principal products produced and services rendered, and dependence on certain customers; (2) 
new products and competitive conditions; (3) sources and availability of raw materials and 
intellectual property; (4) business subject to renegotiation or termination of government 
contracts; (5) seasonality of the business; and (6) the material effects of compliance with 
environmental laws.
301
  Since the information required under Item 101(c) may be relevant to firm 
value,
302
 investors and registrants would likely benefit if the proposed examples elicit 
information material to an investment decision while allowing registrants to tailor the disclosure 
to their specific circumstances. 
 Two of the proposed topics are more expansive than the current disclosure requirements 
contained in Item 101(c).  We propose to replace the requirement to disclose the number of 
employees with a description of the registrant’s human capital resources, including in such 
description human capital measures or objectives that management focuses on in managing the 
business, to the extent such disclosures would be material to an understanding of the registrant’s 
business.  The proposed amendment provides non-exclusive examples of human capital 
measures and objectives, such as measures or objectives that address the attraction, development, 
                                                 
301
   The current Item 101(c) requirement to disclose the number of a registrant’s employees potentially would be 
encompassed by the proposed more expansive human capital resources disclosure topic.  See supra Section 
II.B.7. 
302
   For example, some academic research has found that the introduction of a new product increases long-term 
financial performance of the company and firm value.  See Dominique
 Hanssens, Koen Pauwels, Jorge Silva-
Risso, and Shuba
 Srinivasan, New Products, Sales Promotions, and Firm Value:The Case of the Automobile 
Industry, 68 J. Marketing 142-56 (2004).and Amil
 Petrin, Quantifying the Benefits of New Products: The Case 
of the Minivan, 110  J. Pol. Econ. 705-29 (2002).  Some academic research has also found that patents have a 
significant impact on firm-level productivity and market value.  See Nicholas
 Bloom and John Van Reenen, 
Patents, Real Options and Firm Performance, 112 Econ. J. C97-C116 (2002), and Zvi
 Griliches, Market Value, 
R&D and Patents, 7 Econ. Letters 183-87 (1981).   

87 
 
and retention of personnel.    In one meta-analysis, which reviewed 66 studies, the authors found 
that besides the number of employees, other human capital characteristics, including education, 
experience, and training,
303
 have positive effects on firm performance.  Another author found 
that turnover rates reflect human resource management practices.
304
  Therefore, it is possible that 
investors may benefit from additional information elicited by the human capital topic.  
Registrants would incur incremental compliance costs to provide this additional information, if 
they determine that it is material. 
 We also propose to replace the requirement to disclose the material effects on the 
registrant of compliance with environmental laws with a disclosure topic that covers the material 
effects of compliance with material government regulations, including environmental laws.  To 
the extent that information about compliance with government regulations affects firm value,      
investors may benefit from additional information about the effects of material government 
regulations.  Registrants, however, will incur incremental compliance costs to provide this 
information, if they determine that it is material to an understanding of their business.  To the 
extent that many registrants already disclose such information, the incremental benefits and costs 
could be limited. 
Some of the disclosure requirements currently contained in Item 101(c) would not be 
included as potential topics in the revised rule.
305
  To the extent that the exclusion of these items 
                                                 
303
  See T. R. Crook, S. Y Todd, J. G. Combs, D. J. Woehr, & D. J. Ketchen Jr., Does human capital matter? A 
meta-analysis of the relationship between human capital and firm performance, 96  J. Appl. Psychol. 443–56 
(2011).   
304
  See M.A. Huselid, The Impact of Human Resource Management Practices on Turnover, Productivity, and 
Corporate Financial Performance, 38 Acad. Manag. J. 635–672 (1995). 
305
   The proposed amendments would no longer list the following topics: disclosure about new segments and dollar 
amount of backlog orders believed to be firm, in addition to working capital practices, which we discuss below.       

88 
 
results in a loss of material information,
306
 there may be costs to investors.  However, we believe 
that any such costs would be limited given that, under the proposed principles-based approach, 
the list of disclosure topics is not exhaustive and registrants still would be required to provide 
disclosure about these topics if they are material to an understanding of the business.     
Additionally, in an effort to consolidate working capital disclosure in one location and to 
avoid duplicative disclosure, we propose not to include working capital practices as a potential 
topic in Item 101(c), with the expectation that working capital would be discussed in a 
registrant’s MD&A, to the extent material.  If duplicative disclosure distracts investors from 
other important information, the proposal may benefit investors by reducing repetition and 
facilitating more efficient information processing.  However, to the extent that information on 
working capital practices would no longer be readily available in multiple locations, investors 
may have to spend more time to retrieve the information.  Registrants may marginally benefit 
from reduced compliance costs from the elimination of duplicative disclosure. 
Overall, investors and registrants may benefit from the proposed amendments to Item 
101(c) if the existing requirements result in disclosure that is not material to an investment 
decision and/or is costly to provide.   
   iii. Legal Proceedings (Item 103)  
Item 103 requires disclosure of material pending legal proceedings and other relevant 
information about the proceedings, such as the name of the court, the date instituted, and the 
                                                 
306
   An academic article shows that acquisition of new segments has significant effects on firm productivity.  Firms 
diversifying into a new segment experience a net reduction in productivity. While productivity of new plants 
increases, incumbent plants suffer.  See Antoinette Schoar, The Effect of Diversification on Firm Productivity, 
62 J. Fin. 2379-2403 (2002).  Another article shows that backlog orders can predict future earnings.  See Siva 
Rajgopal, Terry Shevlin, and Mohan Venkatachalam, Does the Market Fully Appreciate the Implications of 
Leading Indicators for Future Earnings? Evidence from Order Backlog, 8 Rev. Acct. Stud. 461-492 (2003).  
Based on these studies, one could anticipate that availability of material information on new segments
 and 
dollar amount of backlog orders believed to be firm could benefit investors. 

89 
 
principal parties involved.  Given that involvement in legal proceedings can affect a firm’s cash 
flows through multiple channels, including legal fees, the cost of executives being distracted 
from their main operational tasks, reputational costs, and settlement costs, information required 
under Item 103 is relevant to firm value.  Several studies also have found that the possibility of 
legal proceedings may affect corporate decisions, such as pricing of securities
307
 and 
management’s information dissemination.
308
  Therefore, investors might benefit if the proposal to 
update Item 103 results in more effective disclosure of material legal proceedings information. 
Currently, Item 103 and U.S. GAAP, which requires disclosure of certain loss 
contingencies, overlap in the requirement to disclose certain information associated with legal 
proceedings.  As a result, in order to comply with Item 103, registrants commonly repeat 
disclosures that are already provided elsewhere in registration statements and periodic reports.  
We propose to revise Item 103 to encourage the use of hyperlinks or cross-references to avoid 
repetitive disclosure.  If duplicative disclosure distracts investors from other important 
information, the proposal may benefit investors by reducing repetition and facilitating more 
efficient information processing.  However, to the extent that some information on legal 
proceedings would no longer be readily available under Item 103, investors may have to spend 
more time to retrieve the information through hyperlinks or cross-references.  However, we 
believe the increase in retrieval cost for investors would be minimal.  While registrants may 
                                                 
307
  See Michelle Lowry and Susan Shu, Litigation Risk and IPO Underpricing, 65 J. Fin. Econ. 309–35 (2002)  
(finding that firms with higher litigation risk underprice their IPOs by a greater amount as a form of insurance, 
and underpricing by a greater amount lowers expected litigation costs). 
308
  See Douglas J. Skinner, Why Firms Voluntarily Disclose Bad News?, 32 J. Acct. Res. 38-60 (1994) (suggesting 
that because shareholders are more likely to sue over earnings announcements with large negative returns, firms 
have an incentive to disclose bad earnings early in order to reduce the probability of being sued and the 
magnitude of damages).  See also Joel F. Houston, Chen Lin, Sibo Liu, and Lai Wei, Litigation Risk and 
Voluntary Disclosure: Evidence from Legal Changes, Account. Rev. (forthcoming 2019) (finding a positive 
relation between the expectation of litigation and voluntary disclosure and suggesting that earnings forecast 
strategies are often designed to deter litigation).   

90 
 
incur minimal compliance costs if they choose to include hyperlinks, we believe registrants 
would benefit from the proposal due to the potential reduction in costs to disclose duplicative 
information. 
Currently, Item 103 specifically requires disclosure of any proceedings under 
environmental laws to which a governmental authority is a party unless the registrant reasonably 
believes that the proceeding will result in monetary sanctions, exclusive of interest and costs, of 
less than $100,000.  This bright-line threshold for environmental proceedings was adopted in 
1982.  We propose to adjust the $100,000 threshold to $300,000 to account for the effects of 
inflation.  Some research has found that environmental liabilities can influence certain corporate 
decisions related to managing environmental regulatory risk
309
 and that some investors include 
environmental criteria in their investment strategies.
310
  Therefore, the disclosure of 
environmental proceedings at the appropriate level might benefit investors who have a particular 
interest in environmental matters.  The economic effects of increasing the disclosure threshold 
depend on investor preferences.  In other words, if investors do not use information about 
                                                 
309
  See Dean Neu, Kathryn Pedwell, and Hussein Warsame, Managing Public Impressions: Environmental 
Disclosures in Annual Reports, 23 Acct. Org. & Soc’y 265-82 (1998) (using a matched-pair sample of publicly 
traded Canadian companies that have been subject to environmental fines and those that have not to analyze 
changes in pre-fine and post-fine environmental disclosure quality, and finding that environmental disclosure 
provides organizations with a method of managing potential discrediting events).  See also Xin Chang, 
Kangkang Fu, Tao Li, Lewis Tam, and George Wong, Corporate Environmental Liabilities and Capital 
Structure (2018), available at https://ssrn.com/abstract=3200991 (documenting that firms with higher 
environmental liabilities maintain lower financial leverage ratios and suggesting that environmental liabilities 
and financial liabilities are substitutionary). 
310
  See Steve Schueth, Socially Responsible Investing in the United States, 43 J. Bus. Ethics 189-94 (2003) 
(providing an overview of the concept and practice of socially and environmentally responsible investing, 
describing the investment strategies practiced in the U.S., offering explanations for its growth, and examining 
who chooses to invest in a socially and environmentally responsible manner).  See also Laura Starks, Parth 
Venkat, and Qifei Zhu, Corporate ESG profiles and investor horizons (2017), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3049943 (finding that investors behave more patiently 
toward environmentally-responsible firms as they sell less after negative earnings surprises or poor stock 
returns).   However, investors may derive value from characteristics of investments that are unrelated to 
financial performance, and these studies do not directly address whether environmental disclosures provide 
material information to investors. 

91 
 
environmental proceedings that result in sanctions smaller than $300,000 to inform investment 
decisions, the proposal may benefit investors since elimination of disclosure that investors do not 
use may facilitate more efficient information processing.  If investors use such information, 
however, the proposal may have a cost to them.  Since the proposed threshold is higher than the 
current threshold, registrants should benefit from reduced compliance costs. 
   iv. Risk Factors (Item 105) 
Item 105 requires disclosure of the most significant factors that make an investment in 
the registrant or offering speculative or risky.  Some academic research supports the notion that 
information currently required under Item 105 is important to investors.  For example, there is 
evidence that risk factor disclosure by publicly traded firms is material in content.
311
  There also 
is evidence suggesting that investors benefit from risk-factor disclosures that are more specific.
312
  
In measuring long-run returns to IPO stocks, some studies conclude that the returns are 
commensurate with the risk profiles of the individual firms.
313
  Together, this research supports 
the notion that effective disclosures of risk factors can help investors better manage their risk 
exposure. 
                                                 
311
  See John L. Campbell, Hsinchun Chen, Dan S. Dhaliwal, Hsin-min Lu, and Logan B. Steele, The information 
content of mandatory risk factor disclosures in corporate filings, 19 Rev. Acct. Stud. 396-455 (2014) (finding 
that the required disclosures of risk factors in Form 10-K filings affect market beta, stock return volatility, 
information asymmetry, and firm value, and that firms that face more risks disclose correspondingly more in the 
risk factor discussion). 
312
  See Ole Kristian Hope, Danqi Hu and Hai Lu, The Benefits of Specific Risk-Factor Disclosures, 21 Rev. Acct. 
Stud. 1005-45 (2016) (finding that the market reaction to a Form 10-K filing is positively and significantly 
associated with specificity and suggesting that analysts are better able to assess fundamental risk when firms’ 
risk-factor disclosures are more specific). 
313
  See Bjørn Eckbo and Øyvind Norli, Liquidity Risk, Leverage, and Long-Run IPO Returns, 11.  J. Corp. Fin. 1-
35 (2005) (constructing a portfolio of 6,000 IPO stocks and measure their returns in order to compare them with 
individual risk factors). The model for risk estimation includes several quantitative measures, as well as simple 
characteristic-based risks of the type disclosed in Forms S-1 and 10-K. The results indicate that the returns are 
likely fully justified by the increased risk of the IPO firms.  

92 
 
We propose to amend Item 105 to require summary risk factor disclosure in the forepart 
of the document when the risk factor section exceeds 15 pages.  If lengthy risk factor disclosure 
contains information that is less meaningful to investors, such as generic risks that could apply to 
any investment in securities, a summary of risk factors should benefit investors, especially those 
who have less time to review and analyze registrants’ disclosure, by enabling them to make more 
efficient investment decisions.  The proposed threshold could also incentivize registrants to limit 
the length of their risk factor disclosure to 15 pages.  Based on current disclosure practices, we 
estimate that a 15-page threshold would affect approximately 40 percent of registrants.
314
  In 
order to comply with the proposed amendments, registrants may incur additional costs to 
summarize or shorten their risk factor disclosure.  If registrants shorten their risk factor 
disclosure to avoid triggering the summary disclosure requirement, the disclosure might become 
less detailed.  However, registrants that are providing lengthy risk factor disclosure to reduce 
potential litigation risks might be less likely to shorten the disclosure simply to avoid this 
requirement.   
We propose to update Item 105 to replace the requirement to discuss the “most 
significant” risks with “material” risks.  The economic effects of the proposal depend on the 
preferences of investors.  If the existing “most significant” standard elicits too much or too little 
information, investors may benefit from the proposed materiality standard.  Focusing on the risks 
to which investors would attach the most importance should enable them to make more efficient 
                                                 
314
   To estimate the percentage of registrants that would be affected by a 15-page threshold, we extracted all Forms 
S-1, S-3, S-4, S-11, 1-A, 10, and 10-K filed with the Commission during calendar year 2018.  This population 
consists of approximately 10,000 forms.  We then excluded Forms 10-K filed by smaller reporting companies 
and asset-backed issuers as well as Forms 10 filed by smaller reporting companies because they are not required 
to provide risk factor disclosure per Item 1A or Instruction J.  Next, we constructed a random sample of 100 
companies and calculated the length of their risk factor disclosure.  The resulting page distribution had the mean 
of 15.26 and median of 13.5 pages.  The 15-page threshold is around the 60
th
 percentile of the distribution.  
Therefore, we estimate that this threshold would affect approximately 40 percent of registrants.   

93 
 
investment decisions.  Registrants may experience increased (decreased) compliance costs if the 
materiality standard results in more (less) expansive disclosure than the existing “most 
significant” standard. 
We propose to update Item 105 to require registrants to organize their risk factor 
disclosure under relevant headings, with generic risk factors, if disclosed, at the end of the 
section captioned as “General Risk Factors.”  Some academic research has found that different 
types of registrants disclose different types of risk factors and certain types of risk factors are 
more correlated with stock return volatilities and systematic risks.
315
  Therefore, well-organized 
risk factor disclosure that gives greater prominence to the most significant risks could benefit 
investors, especially those who have less time to review and analyze registrants’ disclosure, by 
enabling them to make more efficient investment decisions.  Registrants may incur additional 
costs to organize their risk factor disclosure. 
Overall, the proposed amendments to Item 105 may benefit investors if they result in 
disclosure that is more likely to be material and concise.  Registrants may incur additional costs 
to organize and summarize their risk factor disclosure.  To the extent that registrants shorten their 
risk factor disclosure to avoid triggering the summary disclosure requirement and investors 
valued the additional information, investors would incur costs associated with the loss of some 
information. 
C. Anticipated Effects on Efficiency, Competition, and Capital Formation 
As discussed above, the proposed amendments may improve capital allocation efficiency 
                                                 
315
  See Ryan D. Israelsen, Tell It Like It Is: Disclosed Risks and Factor Portfolios (2014), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2504522 (using textual analysis techniques to extract a 
broad set of disclosed risk factors from firms’ SEC filings to examines characteristics of the firms most likely to 
make each type of disclosure, and investigating the relation between firms’ risk disclosures and their stock 
return volatilities and factor loadings). 

94 
 
by enabling investors to make more efficient investment decisions.  For example, the proposed 
amendments may reduce search costs for certain investors by eliminating information that is not 
material to those investors.  Given that certain investors may have less time to review and 
analyze registrants’ disclosure,
316
 elimination of such information may facilitate more efficient 
investment decision making.  In addition, permitting issuers to omit disclosure of information 
when it is not material may reduce issuer compliance costs, allowing issuers to deploy resources 
towards more productive uses and thus encouraging capital formation.  The reduction in 
compliance costs might be particularly beneficial for smaller and younger issuers that are 
resource-constrained.
317
   
However, in cases in which issuers misjudge what information is material, a principles-
based disclosure framework relying on issuers’ determinations could result in increased 
information asymmetries between issuers and investors.  Such asymmetries may increase the 
cost of capital, reduce capital formation, and hamper efficient allocation of capital across 
companies.  Overall, to the extent that the proposed amendments would eliminate disclosure that 
is not considered to be material, we believe these effects would be limited.  Moreover, we would 
expect this risk to be offset by mitigants including accounting controls and the antifraud 
provisions of the securities laws. 
D. Alternatives 
We are proposing to revise Items 101(a), 101(c), and 105 to be more principles-based.  
                                                 
316
  See David Hirshleifer and Siew Hong Teoh, Limited attention, information disclosure, and financial reporting, 
36 J. Acct. & Econ. 337−86 (2003) (developinging a theoretical model where investors have limited attention 
and processing power and  showing that, with partially attentive investors, the means of presenting information 
may have an impact on stock price reactions, misvaluation, long-run abnormal returns, and corporate decisions). 
317
   We note, however, that, except for the elimination of the provision that requires smaller reporting companies to 
describe the development of their business during the last three years, smaller reporting companies that elect to 
provide the alternative business disclosure under Item 101(h) will continue to have mostly prescriptive 
requirements under the proposed amendments. 

95 
 
As an alternative to this proposal, we considered modifying these requirements using 
prescriptive standards.  A prescriptive standard could preserve the information investors 
currently receive while eliciting additional specific disclosures, may be easier to apply, and could 
enhance the comparability and verifiability of information.  For example, in response to previous 
requests for comment, commenters advocated for additional specific disclosures about 
environmental and foreign regulatory risks, the number and types of employees, and business 
strategy.  However, not all of these disclosures will be relevant at the same level of detail for all 
registrants.  Given that the optimal levels of disclosure for business description and risk factors, 
in particular, are likely to vary greatly across registrants, a more flexible principles-based 
approach should be more likely to elicit the appropriate disclosures for these items.  In addition, 
a prescriptive approach to a particular area of disclosure where the specified metric does not 
capture or does not fully capture the information likely to be material to an investment decision 
for a particular issuer or for comparable issuers may lead investors to rely on that metric for the 
issuer or as a comparative tool with respect to other issuers. 
We also are proposing to adjust for inflation the bright-line threshold for environmental 
proceedings in Item 103 from $100,000 to $300,000.  As an alternative to this proposal, we 
considered applying a materiality standard.  On the one hand, a materiality standard might elicit 
disclosure that is more relevant to a registrant’s operations.  For example, the same dollar 
amount of environmental fines might have a significant impact on cash flows of a small 
registrant but a trivial impact on cash flows of a large registrant.  On the other hand, the bright-
line threshold is easier to apply and could enhance comparability across registrants and over 
time.  Given that some environmental proceedings can be factually and legally complex, a 
bright-line threshold provides an easy-to-apply benchmark for registrants when determining 

96 
 
whether a particular environmental proceeding should be disclosed.  Another alternative is to 
adopt a lower or higher bright-line threshold than the one proposed.  The optimal threshold 
depends on the preference of investors.  For example, a lower bright-line threshold might be 
more appropriate if investors use information about environmental proceedings smaller than 
$300,000 to inform investment decisions. 
As another alternative, we considered revising Form 20-F so that certain of the proposed 
amendments would also apply to foreign private issuers.
318
  For example, we considered making 
the business disclosure requirements under Form 20-F, which are largely prescriptive, more 
principles based as we have proposed to do for domestic registrants.  One advantage to similarly 
amending the business disclosure requirements under Form 20-F is that it would enable foreign 
registrants to realize the same expected benefits as domestic registrants by permitting them to 
tailor their disclosure to fit their own particular circumstances and reduce the amount of 
disclosure that is not material.
  However, this could reduce the ability of foreign private issuers 
to use a single disclosure document that would be accepted in multiple jurisdictions.
319
 
More particularly, similar to our rule proposal for registrants filing on domestic forms, 
we considered amending Form 20-F to include as a business disclosure topic human capital 
resources, including any human capital measures or objectives that management focuses on in 
managing the business, to the extent material to an understanding of the registrant’s business.  
Such an amendment could impose additional costs in the short run for foreign private issuers, to 
the extent that this disclosure is not required in other jurisdictions.  At the same time, investors 
                                                 
318
   As previously explained, business disclosure for foreign private issuer registrants is governed by Part I of Form 
20-F, and not by Item 101 of Regulation S-K.  See supra note 23.  The Commission amended Form 20-F in 
1999 to conform in large part to the non-financial disclosure standards endorsed by IOSCO.  See supra note 190 
and accompanying text. 
319
  See supra note 191 and accompanying text. 

97 
 
could benefit from any additional information elicited by the human capital topic. 
We also considered amending Item 101(h), which permits a smaller reporting company to 
provide the disclosure about its business development and description of its business pursuant to 
that Item as an alternative to Items 101(a) and (c).
320
  We considered amending the disclosure 
requirements of Item 101(h), which are largely prescriptive, to make them more principles-
based, similar to the approach proposed for Items 101(a) and (c).  Such an amendment would 
enable smaller reporting companies to tailor their business disclosure to fit their particular 
circumstances, which could help to eliminate information that is not material.  Smaller reporting 
companies with less established reporting histories, however, may be the most at risk of 
persistent information asymmetries if the principles-based approach results in loss of information 
material to investors.  As noted above, this risk would be offset by mitigants including 
accounting controls and antifraud provisions of the securities laws. 
E. Request for Comments  
In addition to the request for comments in Sections II and III of this release, we request 
comment on various aspects of the costs and benefits of our proposed amendments.  We request 
comment from the point of view of investors, registrants, and other market participants.  We are 
interested in comments on the analyses and conclusions of this Section and any effect the 
proposed amendments may have on efficiency, competition, and capital formation.  We also 
request comments on alternatives presented in this release as well as any additional alternatives 
to the proposed amendments that should be considered.  We appreciate any data or analysis that 
may help quantify the potential costs and benefits identified.  In particular, we appreciate any 
data or analyses that would help understand the effects of using a higher or lower quantitative 
                                                 
320
  See supra note 80. 

98 
 
threshold for environmental proceedings.  In addition, if the proposed materiality standards in 
this release diminish comparability among registrants, we appreciate any data or analyses on the 
costs associated with the loss of such comparability. 
PAPERWORK REDUCTION ACT V. 
A. Summary of the Collections of Information 
Certain provisions of our rules, schedules, and forms that would be affected by the 
proposed amendments contain “collection of information” requirements within the meaning of 
the Paperwork Reduction Act of 1995 (“PRA”).
321
  The Commission is submitting the proposed 
amendments to the Office of Management and Budget (“OMB”) for review in accordance with 
the PRA.
322
  The hours and costs associated with preparing, filing, and sending the schedules and 
forms constitute reporting and cost burdens imposed by each collection of information.  An 
agency may not conduct or sponsor, and a person is not required to comply with, a collection of 
information unless it displays a currently valid OMB control number.  Compliance with the 
information collections is mandatory.  Responses to the information collections are not kept 
confidential and there is no mandatory retention period for the information disclosed.  The titles 
for the collections of information are:  
 “Regulation S-K” (OMB Control No. 3235-0071);
323
 
 “Form S-1” (OMB Control No. 3235-0065); 
“Form S-3” (OMB Control No. 3235-0073; 
“Form S-4” (OMB Control No. 3235-0324); 
                                                 
321
   44 U.S.C. 3501 et seq. 
322
   44 U.S.C. 3507(d) and 5 CFR 1320.11. 
323
   The paperwork burden for Regulation S-K is imposed through the forms that are subject to the requirements in 
this regulation and is reflected in the analysis of those forms. To avoid a PRA inventory reflecting duplicative 
burdens and for administrative convenience, we assign a one-hour burden to Regulation S-K. 

99 
 
“Form S-11” (OMB Control No. 3235-0067); 
“Form F-1” (OMB Control No. 3235-0258); 
“Form F-3” (OMB Control No. 3235-0256); 
“Form F-4” (OMB Control No. 3235-0325); 
“Form SF-1” (OMB Control No. 3235-0707); 
“Form SF-3” (OMB Control No. 3235-0690); 
 “Form 10” (OMB Control No. 3235-0064); 
“Form 10-K” (OMB Control No. 3235-0063); 
“Form 10-Q” (OMB Control No. 3235-0070); 
“Schedule 14A” (OMB Control No. 3235-0059) 
We adopted all of the existing regulations, schedules, and forms pursuant to the 
Securities Act and the Exchange Act.  The regulations, schedules, and forms set forth the 
disclosure requirements for registration statements, periodic reports, and proxy and information 
statements filed by registrants to help investors make informed investment and voting decisions.   
A description of the proposed amendments, including the need for the information and its 
proposed use, as well as a description of the likely respondents, can be found in Section II above, 
and a discussion of the economic effects of the proposed amendments can be found in Section IV 
above. 
B. Summary of the Proposed Amendments’ Effects on the Collections of 
Information 
 
 The following table summarizes the estimated effects of the proposed amendments on the 
paperwork burdens associated with the affected forms listed in Section V.A. 
PRA Table 1.  Estimated Paperwork Burden Effects of the Proposed Amendments 
  
Proposed Amendments and Effects Affected Forms 
Estimated Net Effect* 
Item 101(a): 
  

100 
 
 
• More principles-based disclosure requirement, elimination 
of timeframe, and, for registration statements subsequent to 
the initial registration statement, requiring only an update 
with a hyperlink to the most recently filed disclosure that, 
together with the update, would present a complete 
discussion of the general development of a registrant’s 
business, would decrease the paperwork burden by reducing 
repetitive and immaterial information about a registrant’s 
business development.  Estimated burden decrease:  3 hours 
per form; and, for Schedule 14A, 0.3 hour per schedule.** 
 
• Addition of material changes to business strategy as a 
potential disclosure topic could increase the paperwork 
burden for some registrants, although such increase is 
expected to be minimal as many registrants already provide 
such disclosure.  Estimated burden increase: 1 hour per form; 
and, for Schedule 14A, 0.1 hour per schedule.** 
 
 
• Forms S-1, S-4, 10, 10-K 
 
 
• Schedule 14A 
 
• 2 hour net decrease in 
compliance burden per form 
 
• 0.2 hour net decrease in 
compliance burden per 
schedule 
Item 101(c): 
 
•  More principles-based disclosure requirement is expected 
to decrease the paperwork burden.  Estimated burden 
decrease:  3 hours per form; and, for Schedule 14A, 0.3 hour 
per schedule.** 
 
• Addition of human capital resources/measures and 
objectives as potential disclosure topic would likely increase 
the paperwork burden.  Estimated burden increase: 5 hours 
per form; and, for Schedule 14A, 0.5 hour per schedule.** 
 
• Addition of material government (and not just 
environmental) regulations as a potential disclosure topic 
could increase the paperwork burden for some registrants, 
although such increase is expected to be minimal as many 
registrants already provide such disclosure. Estimated 
burden increase: 1 hour per form; and, for Schedule 14A, 0. 
1 hour per schedule.** 
 
 
• Forms S-1, S-4, 10, 10-K 
 
 
• Schedule 14A 
 
 
• 3 hour net increase in 
compliance burden per form 
 
• 0.3 hour net increase in 
compliance burden per 
schedule 
Item 103: 
 
• Expressly providing for the use of hyperlinks or cross-
references is expected to decrease the paperwork burden by 
discouraging repetitive disclosure.  Estimated burden 
decrease: 1 hour per form/schedule. 
 
• Raising the disclosure threshold for governmental 
environmental proceedings could also decrease the 
paperwork burden by reducing disclosure of immaterial 
proceedings.  Estimated burden decrease:  2 hours per 
form/schedule. 
 
 
Forms S-1, S-4, S-11, 10,  
10-K, 10-Q, Schedule 14A 
 
 
3 hour net decrease in 
compliance burden per form / 
schedule 
Item 105: 
 
• Summary risk factor disclosure provision could increase 
the paperwork burden for some registrants, although such 
increase is expected to be minimal as the summary would 
 
 
• Forms S-1, S-3, S-4, F-1, 
F-3, F-4, SF-1, SF-3 
 
 
 
• 3 hour net decrease in  
compliance burden per form  
 

101 
 
consist of a bulleted list. Estimated burden increase:  1 hour 
per form, except no increase for Form S-11,*** and 0.67 
hour increase per form for Forms 10, 10-K, and 10-Q.
± 
 
• Summary risk factor disclosure provision could decrease 
the paperwork burden for other registrants to extent that it 
incentivizes registrants to provide streamlined risk factor 
disclosure focusing on the most salient risks.  Estimated 
burden decrease:  4 hours per form, except no decrease for 
Form S-11,*** and 2.67 hour decrease per form for Forms 
10, 10-K, and 10-Q.
±
 
  
• “General Risk Factors” heading provision could marginally 
increase the paperwork burden.  Estimated burden increase: 
0.5 hour per form, except 0.33 hour increase per form for 
Forms 10, 10-K, and 10-Q.
±
 
 
• Substitution of “material” risks for “most significant” risks 
could marginally decrease the paperwork burden.  Estimated 
burden decrease:  0.5 hours per form, except 0.33 hour 
decrease per form for Forms 10, 10-K, and 10-Q.
±
 
• Form S-11 
 
 
• Forms 10, 10-K, 10-Q 
 
• no change in compliance 
burden 
 
• 2 hour net decrease in 
compliance burden per form 
 
Total 
 
• Forms S-1, S-4  
 
• Forms S-3, S-11, F-1, F-3, 
F-4, SF-1, SF-3 
 
• Form 10, 10-K 
 
• 10-Q 
 
• Schedule 14A 
 
• 5 hour net decrease per form 
   
• 3 hour net decrease per form 
 
 
• 4 hour net decrease per form 
 
• 5 hour net decrease per form 
 
• 2.9 hour net decrease per 
schedule 
*Estimated effect expressed as increase or decrease of burden hours on average and derived from staff review of 
samples of relevant sections of the affected forms. 
 
**The lower estimated average incremental burden for Schedule 14A reflects the Commission staff estimate that no 
more than 10% of the Schedule 14As filed annually include Item 101 disclosures. 
 
***Because Form S-11 already has a summary risk factor disclosure requirement, the proposed Item 105 
amendment is not expected to affect the compliance burden for Form S-11 registrants. 
 
 ± 
The reduced estimated average incremental burden for Forms 10, 10-K and 10-Q reflects the fact that smaller 
reporting companies, which comprise approximately one-third of the registrants filing those forms, are not required 
to provide Item 105 risk factor disclosure. 
 
C. Incremental and Aggregate Burden and Cost Estimates for the Proposed 
Amendments 
 
Below we estimate the incremental and aggregate reductions in paperwork burden as a 
result of the proposed amendments.  These estimates represent the average burden for all 

102 
 
registrants, both large and small.  In deriving our estimates, we recognize that the burdens will 
likely vary among individual registrants based on a number of factors, including the nature of 
their business.  We do not believe that the proposed amendments would change the frequency of 
responses to the existing collections of information; rather, we estimate that the proposed 
amendments would change only the burden per response. 
The burden reduction estimates were calculated by multiplying the estimated number of 
responses by the estimated average amount of time it would take a registrant to prepare and 
review disclosure required under the proposed amendments.  For purposes of the PRA, the 
burden is to be allocated between internal burden hours and outside professional costs.  The table 
below sets forth the percentage estimates we typically use for the burden allocation for each 
form.  We also estimate that the average cost of retaining outside professionals is $400 per 
hour.
324
 
PRA Table 2.  Standard Estimated Burden Allocation for Specified Forms and Schedules. 
Form / Schedule Type Internal Outside Professionals 
    Forms 10-K, 10-Q, Schedule 14A 75% 25% 
      Forms S-1, S-3, S-4, S-11, F-1,    
      F-3, F-4, SF-1, SF-3, and 10 
25% 75% 
 
 The table below illustrates the incremental change to the total annual compliance burden 
of affected forms, in hours and in costs, as a result of the proposed amendments. 
PRA Table 3.  Calculation of the Incremental Change in Burden Estimates of Current 
Responses Resulting from the Proposed Amendments 
  
                                                 
324
  We recognize that the costs of retaining outside professionals may vary depending on the nature of the 
professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of 
$400 per hour.  This estimate is based on consultations with several registrants, law firms, and other persons 
who regularly assist registrants in preparing and filing reports with the Commission. 

103 
 
 
 The following table summarizes the requested paperwork burden, including the estimated 
total reporting burdens and costs, under the proposed amendments. 
PRA Table 4.  Requested Paperwork Burden under the Proposed Amendments 
                                                 
325
  The number of estimated affected responses is based on the number of responses in the Commission’s current 
OMB PRA filing inventory.  The OMB PRA filing inventory represents a three-year average.  We do not expect 
that the proposed amendments will materially change the number of responses in the current OMB PRA filing 
inventory.   
326
  The estimated reductions in Columns (C), (D) and (E) are rounded to the nearest whole number. 
327
   From Column (D) in PRA Table 3. 
328
   From Column (F) in PRA Table 3. 
Form Number of 
Estimated 
Affected 
Responses  
(A)
325
 
Burden 
Hour 
Reduction 
per 
Current 
Affected 
Response 
(B) 
 
Reduction in 
Burden Hours 
for Current 
Affected 
Responses 
(C) 
 
= (A) x (B)
326
 
 
Reduction in 
Company 
Hours for 
Current 
Affected 
Responses 
(D) 
 
= (C) x 0.25 or  
    0.75 
Reduction in 
Professional 
Hours for 
Current 
Affected 
Responses 
(E) 
 
= (C) x 0.75 or  
    0.25 
Reduction in 
Professional 
Costs for 
Current 
Affected 
Responses 
(F) 
 
= (E) x $400 
S-1         901 5        4,505         1,126         3,379   $1,351,600 
S-3      1,657 3        4,971         1,243         3,729   $1,491,600 
S-4         551 5        2,755            689         2,066      $826,400 
S-11           64    3           192              48            144        $57,600 
F-1           63 3           189              47            142            $56,800 
F-3         112 3           336              84            252      $100,800 
F-4           39 3           117              29              88        $35,200 
SF-1             6  3             18                5              14           $5,600 
SF-3           71 3           213                53            160        $64,000 
10         216 4           864              216                648      $259,200 
10-K      8,137 4      32,548       24,411         8,137   $3,254,800 
10-Q    22,907 5    114,535       85,901       28,634  $11,453,600 
Sch. 
14A 
     5,586        2.9      16,199       12,149         4,050   $1,620,000 
Total    40,310            126,001  $20,577,200 
  
Current Burden 
 
 
Program Change 
 
Requested Change in Burden 
Form Current 
Annual 
Responses 
(A) 
Current 
Burden 
Hours 
(B) 
Current Cost 
Burden 
(C) 
Number 
of 
Affected 
Responses 
(D) 
 
Reduction 
in 
Company 
Hours 
(E)
327
 
Reduction in 
Professional 
Costs 
(F)
328
 
Annual 
Responses 
 (G) = (A) 
Burden 
Hours 
(H) = (B)     
+ (E) 
Cost Burden 
  (I) = (C) + (F) 

104 
 
 
Request for Comment 
 Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order to: 
• Evaluate whether the proposed collections of information are necessary for the proper 
performance of the functions of the Commission, including whether the information will 
have practical utility; 
• Evaluate the accuracy and assumptions and estimates of the burden of the proposed 
collection of information; 
• Determine whether there are ways to enhance the quality, utility, and clarity of the 
information to be collected; 
• Evaluate whether there are ways to minimize the burden of the collection of information 
on those who respond, including through the use of automated collection techniques or 
other forms of information technology; and  
• Evaluate whether the proposed amendments would have any effects on any other 
collection of information not previously identified in this section. 
Any member of the public may direct to us any comments concerning the accuracy of 
these burden estimates and any suggestions for reducing these burdens.  Persons submitting 
 S-1       901      148,556    $182,048,700       901    1,126   $1,351,600       901      147,430    $180,697,100 
 S-3    1,657      193,730    $236,322,036    1,657    1,243   $1,491,600    1,657      192,487    $234,830,436 
 S-4       551      565,079    $678,291,204       551       689      $826,400       551      564,390    $677,464,804 
 S-11         64           12,290      $15,016,968         64            48        $57,600         64           12,242      $14,959,368 
 F-1         63        26,815      $32,445,300         63         47        $56,800         63        26,768      $32,388,500 
 F-3       112          4,448        $5,712,000       112         84      $100,800       112          4,364        $5,611,200 
 F-4         39        14,265      $17,106,000         39         29        $35,200         39        14,236      $17,070,800 
 SF-1           6          2,076        $2,491,200           6           5          $5,600           6          2,071        $2,485,600 
 SF-3         71        24,548      $29,457,900         71         53        $64,000         71        24,495      $29,393,900 
 10       216        12,072      $14,356,888       216       216          $259,200       216        12,018      $14,032,888 
 10-K    8,137 14,220,652 $1,898,891,869    8,137  24,411   $3,254,800    8,137 14,190,138 $1,894,823,469 
 10-Q  22,907   3,253,411    $432,290,354  22,907  85,901 $11,453,600  22,907   3,167,510    $420,836,754 
 Sch.            
14A 
   5,586      551,101      $73,480,012    5,586  12,149   $1,620,000    5,586      538,952      $72,362,812  
Total  40,310 15,775,632 $3,617,910,431  40,310 126,001 $20,577,200  40,310 18,897,101 $3,596,957,631 

105 
 
comments on the collection of information requirements should direct their comments to the 
Office of Management and Budget, Attention: Desk Officer for the U.S. Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and send a 
copy to, Vanessa A. Countryman, Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE, Washington, DC 20549-1090, with reference to File No. S7-11-19.  Requests for 
materials submitted to OMB by the Commission with regard to the collection of information 
should be in writing, refer to File No. S7-11-19 and be submitted to the U.S. Securities and 
Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington DC 20549-2736. 
OMB is required to make a decision concerning the collection of information between 30 and 60 
days after publication of this proposed rule. Consequently, a comment to OMB is best assured of 
having its full effect if the OMB receives it within 30 days of publication. 
REGULATORY FLEXIBILITY ACT CERTIFICATION VI. 
When an agency issues a rulemaking proposal, the Regulatory Flexibility Act (“RFA”)
329
 
requires the agency to prepare and make available for public comment an Initial Regulatory 
Flexibility Analysis (“IRFA”) that will describe the impact of the proposed rule on small 
entities.
330
  Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an 
IRFA, if the proposed rulemaking is not expected to have a significant economic impact on a 
substantial number of small entities.
331
 
Although the rule proposal would have an impact on a substantial number of small 
                                                 
329
   5 U.S.C. 601 et seq. 
330
   5 U.S.C. 603(a). 
331
   5 U.S.C. 605(b). 

106 
 
entities,
332
 the Commission expects that the impact on entities affected by the proposed rule 
would not be significant.
333
  The primary effects of the rule proposal would be to:  (1) increase 
the flexibility for an entity when providing disclosure regarding its business, including its general 
business development, so that it can tailor its disclosure to its particular circumstances; (2) 
eliminate or reduce disclosure about matters that are not material to an understanding of the 
business or to an entity’s legal proceedings; and (3) encourage risk factor disclosure that is 
shorter and concerns only material risks.  As a result of these effects, we expect that the impact 
of the rule proposal would be a reduction in the paperwork burden of affected entities, including 
small entities, and that the overall impact of the paperwork burden reduction would be modest 
and would be beneficial to small entities.
334
  Accordingly, the Commission hereby certifies, 
pursuant to 5 U.S.C. 605(b), that the proposed amendments to Items 101, 103, and 105 of 
Regulation S-K, if adopted, would not have a significant economic impact on a substantial 
number of small entities for purposes of the RFA. 
Request for Comment 
We request comment on this certification.  In particular, we solicit comment on the 
following:  Do commenters agree with the certification?  If not, please describe the nature of any 
impact of the proposed amendments on small entities and provide empirical data to illustrate the 
extent of the impact.  Such comments will be considered in the preparation of the final rules (and 
in a Final Regulatory Flexibility Analysis if one is needed) and, if the proposed rules are 
adopted, will be placed in the same public file as comments on the proposed rules themselves.   
                                                 
332
   Approximately 2,283, or 33%, of the registrants filing on domestic forms in 2018 were small entities.  See supra 
Section IV.A.  
333
  See Section IV.B. 
334
   We estimate that the proposed amendments are likely to result in a net decrease of between three and five 
burden hours per form for purposes of the Paperwork Reduction Act.  See supra Section V.B. 

107 
 
SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT VII. 
For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA),
335
 the Commission must advise OMB as to whether the proposed amendments 
constitute a “major” rule.  Under SBREFA, a rule is considered “major” where, if adopted, it 
results or is likely to result in: 
• An annual effect on the U.S. economy of $100 million or more (either in the form of an 
increase or a decrease); 
• A major increase in costs or prices for consumers or individual industries; or 
• Significant adverse effects on competition, investment, or innovation. 
We request comment on whether the proposed amendments would be a “major rule” for 
purposes of SBREFA.  In particular, we request comment on the potential effect of the proposed 
amendments on the U.S. economy on an annual basis; any potential increase in costs or prices for 
consumers or individual industries; and any potential effect on competition, investment or 
innovation.  Commenters are requested to provide empirical data and other factual support for 
their views to the extent possible. 
STATUTORY AUTHORITY AND TEXT OF PROPOSED RULE AND FORM VIII. 
AMENDMENTS 
The amendments contained in this release are being proposed under the authority set 
forth in Sections 7, 10, and 19(a) of the Securities Act, as amended, and Sections 3, 12, 13, 15, 
and 23(a) of the Exchange Act, as amended. 
List of Subjects in 17 CFR Parts 229, 239, and 240 
 Reporting and recordkeeping requirements, Securities. 
TEXT OF THE PROPOSED AMENDMENTS 
                                                 
335
   5 U.S.C. 801 et seq. 

108 
 
In accordance with the foregoing, the Commission is proposing to amend title 17, chapter 
II of the Code of Federal Regulations as follows: 
PART 229 – STANDARD INSTRUCTIONS FOR FILING FORMS UNDER 
SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY 
POLICY AND CONSERVATION ACT OF 1975 – REGULATION S-K 
1. The authority citation for part 229 continues to read as follows: 
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25), 
77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 
78n, 78n-1, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-
37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 
124 Stat. 1904 (2010); and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012). 
2. Amend §229.101 by: 
a. R evising paragraphs (a) introductory text and (a)(1); 
b. Redesignating paragraph (a)(2) as paragraph (a)(3); 
c. Adding new paragraph (a)(2); and 
d. Revising paragraphs (c) and (h) introductory text. 
The revisions and addition read as follows: 
 
§229.101 (Item 101) Description of business. 
(a)  General development of business.  Describe the general development of the business 
of the registrant, its subsidiaries, and any predecessor(s). 
(1)  In describing developments, only information material to an understanding of the 
general development of the business is required.  Disclosure may include, but should not be 
limited to, the following topics:   
(i)  Transactions and events that affect or may affect the company’s operations, including 
material changes to a previously disclosed business strategy; 

109 
 
(ii)  Bankruptcy, receivership, or any similar proceeding; 
(iii)  The nature and effects of any material reclassification, merger or consolidation of 
the registrant or any of its significant subsidiaries; and 
(iv)  The acquisition or disposition of any material amount of assets otherwise than in the 
ordinary course of business. 
(2)  For filings other than initial registration statements, a full discussion of the general 
development of the registrant’s business is not required.  For such filings, an update to the 
general development of the business disclosure with a focus on material developments in the 
reporting period may be provided instead of a full discussion.  If a full discussion of the general 
development of the registrant’s business is not included, pursuant to § 230.411 or § 240.12b-23 
of this chapter as applicable, incorporate by reference, and include an active hyperlink to, the 
registrant’s most recently filed disclosure that, together with the update, would present the full 
discussion of the general development of its business. 
*  *  *  *  * 
(c) Description of business.  (1)  Describe the business done and intended to be done 
by the registrant and its subsidiaries, focusing upon the registrant’s dominant segment or each 
reportable segment about which financial information is presented in the financial statements.  
When describing each segment, include the information specified in paragraphs (c)(1)(i) through 
(v) of this section, to the extent such information is material to an understanding of the business 
taken as a whole. 
(i)  Revenue-generating activities, products and/or services, and any dependence on 
revenue-generating activities, key products, services, product families or customers, including 
governmental customers; 

110 
 
(ii)  Status of development efforts for new or enhanced products, trends in market 
demand and competitive conditions; 
(iii)  Resources material to a registrant’s business, such as: 
(A)  Sources and availability of raw materials; and 
(B)  The duration and effect of all patents, trademarks, licenses, franchises and 
concessions held; 
(iv)  A description of any material portion of the business that may be subject to 
renegotiation of profits or termination of contracts or subcontracts at the election of the 
Government; and 
(v)  The extent to which the business is or may be seasonal. 
 (2)  Discuss the information specified in paragraphs (c)(2)(i) and (ii) of this section with 
respect to, and to the extent material to an understanding of, the registrant’s business taken as a 
whole, except that, if the information is material to a particular segment, you should additionally 
identify that segment. 
(i)  The material effects that compliance with material government regulations, including 
environmental regulations,
 may have upon the capital expenditures, earnings and competitive 
position of the registrant and its subsidiaries.  Include in such disclosure material estimated 
capital expenditures for environmental control facilities for the current fiscal year and any other 
subsequent period that the registrant deems material; and 
(ii)  A description of the registrant’s human capital resources, including in such 
description any human capital measures or objectives that management focuses on in managing 
the business ( such as, depending on the nature of the registrant’s business and workforce, 
measures or objectives that address the attraction, development, and retention of personnel). 

111 
 
*  *  *  *  * 
 (h)  Smaller reporting companies.  A smaller reporting company, as defined by 
§229.10(f)(1), may satisfy its obligations under this Item by describing the development of its 
business pursuant to this paragraph (h), except that, for filings other than initial registration 
statements, a smaller reporting company may provide an update to the general development of 
the business disclosure, instead of a full discussion, which complies with paragraph (a)(2) of this 
section.  If the smaller reporting company has not been in business for three years, give the same 
information for predecessor(s) of the smaller reporting company if there are any.  This business 
development description should include: 
* * * * * 
3.  Revise § 229.103 to read as follows: 
 
§229.103 (Item 103) Legal proceedings. 
(a)  Describe briefly any material pending legal proceedings, other than ordinary routine 
litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or 
of which any of their property is the subject.  Include the name of the court or agency in which 
the proceedings are pending, the date instituted, the principal parties thereto, a description of the 
factual basis alleged to underlie the proceedings and the relief sought.  Include similar 
information as to any such proceedings known to be contemplated by governmental authorities.  
Information may be provided by hyperlink or cross-reference to legal proceedings disclosure 
elsewhere in the document, such as in Management’s Discussion & Analysis (MD&A), Risk 
Factors and notes to the financial statements. 
 (b)  No information need be given under this section for proceedings: 
 (1)  That involve negligence or other claims or actions if the business ordinarily results in 

112 
 
such claims or actions, unless the claim or action   departs from the normal kind of such claims or 
actions; or 
 (2)  That involve primarily a claim for damages if the amount involved, exclusive of 
interest and costs, does not exceed 10 percent of the current assets of the registrant and its 
subsidiaries on a consolidated basis.  However, if any proceeding presents in large degree the 
same legal or factual issues as other proceedings pending or known to be contemplated, the 
amount involved in such other proceedings shall be included in computing such percentage. 
 (c)  Notwithstanding paragraph (b) of this section, disclosure under this section shall 
include, but shall not be limited to: 
 (1)  Any material bankruptcy, receivership, or similar proceeding with respect to the 
registrant or any of its significant subsidiaries; 
 (2)  Any material proceedings to which any director, officer or affiliate of the registrant, 
any owner of record or beneficially of more than five percent of any class of voting securities of 
the registrant, or any associate of any such director, officer, affiliate of the registrant, or security 
holder is a party adverse to the registrant or any of its subsidiaries or has a material interest 
adverse to the registrant or any of its subsidiaries; 
 (3)  Administrative or judicial proceedings (including proceedings which present in large 
degree the same issues) arising under any Federal, State, or local provisions that have been 
enacted or adopted regulating the discharge of materials into the environment or primarily for the 
purpose of protecting the environment.  Such proceedings shall not be deemed “ordinary routine 
litigation incidental to the business” and shall be described if: 
 (i)  Such proceeding is material to the business or financial condition of the registrant; 
 (ii)  Such proceeding involves primarily a claim for damages, or involves potential 

113 
 
monetary sanctions, capital expenditures, deferred charges or charges to income and the amount 
involved, exclusive of interest and costs, exceeds 10 percent of the current assets of the registrant 
and its subsidiaries on a consolidated basis; or 
 (iii)  A governmental authority is a party to such proceeding and such proceeding 
involves potential monetary sanctions, unless the registrant reasonably believes that such 
proceeding will result in no monetary sanctions, or in monetary sanctions, exclusive of interest 
and costs, of less than $300,000; provided, however, that such proceedings which are similar in 
nature may be grouped and described generically. 
4.  Revise § 229.105 to read as follows: 
§ 229.105 (Item 105) Risk factors. 
(a)  Where appropriate, provide under the caption “Risk Factors” a discussion of the 
material factors that make an investment in the registrant or offering speculative or risky.  This 
discussion must be organized logically with relevant headings and each risk factor should be set 
forth under a subcaption that adequately describes the risk.  The presentation of risks that could 
apply generically to any registrant or any offering is discouraged, but to the extent generic risk 
factors are presented, disclose them at the end of the risk factor section under the caption 
“General Risk Factors.”  
(b)  Concisely explain how each risk affects the registrant or the securities being offered.  
If the discussion is longer than 15 pages, include in the forefront of the prospectus or annual 
report, as applicable, a series of short, concise, bulleted or numbered statements summarizing the 
principal factors that make an investment in the registrant or offering speculative or risky.  If the 
risk factor discussion is included in a registration statement, it must immediately follow the 
summary section.  If you do not include a summary section, the risk factor section must 

114 
 
immediately follow the cover page of the prospectus or the pricing information section that 
immediately follows the cover page.  Pricing information means price and price-related 
information that you may omit from the prospectus in an effective registration statement based 
on Rule 430A (§ 230.430A of this chapter).  The registrant must furnish this information in plain 
English.  See § 230.421(d) of Regulation C of this chapter.   
PART 239 – FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 
 5.  The authority citation for part 239 continues to read as follows: 
 Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77sss, 78c, 78l, 
78m,78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 
80a-13, 80a-24, 80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat. 
312, unless otherwise noted. 
* * * * * 
 6.  Amend Form S-4 (referenced in § 239.25) by revising paragraph (b)(3)(i) of Item 12 
under Part I, Section B (“Information About the Registrant”) to read as follows: 
 Note:  The text of Form S-4 does not, and this amendment will not, appear in the Code 
of Federal Regulations. 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 
FORM S-4 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 
* * * * * 
PART I 
INFORMATION REQUIRED IN THE PROSPECTUS 

115 
 
* * * * * 
B.  INFORMATION ABOUT THE REGISTRANT 
* * * * * 
Item 12.  Information with Respect to S-3 Registrants. 
* * * * * 
(b) * * * 
 (3)  Furnish the information required by the following:  
 (i) Item 101(c)(1)(i) of Regulation S-K (§ 229.101(c)(1)(i) of this chapter), industry 
segments, key products or services; 
* * * * *  
PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE 
ACT OF 1934 
 
 7.  The authority citation for part 240 continues to read as follows: 
 Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 
77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 
78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 
80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq.; and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 
18 U.S.C. 1350; and Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602, Pub. 
L. 112-106, 126 Stat. 326 (2012), unless otherwise noted. 
* * * * * 
 8.  Amend § 240.14a-101 by revising paragraph (a) of Item 7 of Schedule 14A to read as 
follows: 
§ 240.14a-101   Schedule 14A. Information required in proxy statement. 
* * * * * 

116 
 
Item 7. Directors and executive officers.  * * * 
 (a)  The information required by Item 103(c)(2) of Regulation S-K (§229.103(c)(2) of 
this chapter) with respect to directors and executive officers. 
* * * * * 
 
By the Commission.  
Dated:  August 8, 2019. 
 
 
Vanessa A. Countryman, 
Secretary. 

Conformed to Federal Register version 

SECURITIES AND EXCHANGE COMMISSION 

17 CFR 229, 239, and 240 

[Release Nos. 33-10668; 34-86614; File No. S7-11-19]  

RIN 3235-AL78 

Modernization of Regulation S-K Items 101, 103, and 105  

AGENCY:  Securities and Exchange Commission. 

ACTION:  Proposed rule. 

SUMMARY:  The Securities and Exchange Commission (“Commission”) is proposing for 

public comment amendments to modernize the description of business, legal proceedings, and 

risk factor disclosures that registrants are required to make pursuant to Regulation S-K.  These 

disclosure items have not undergone significant revisions in over 30 years.  The proposed 

amendments are intended to update our rules to account for developments since their adoption or 

last amendment, to improve these disclosures for investors, and to simplify compliance efforts 

for registrants.  Specifically, the proposed amendments are intended to improve the readability of 

disclosure documents, as well as discourage repetition and disclosure of information that is not 

material.   

DATES:  Comments should be received on or before October 22, 2019. 

ADDRESSES: Comments may be submitted by any of the following methods: 

Electronic comments:   

• Use the Commission’s Internet comment form 

(https://www.sec.gov/rules/proposed.shtml); or  



2 
 

• Send an email to [email protected].  Please include File Number S7-11-19 on the 

subject line. 

Paper comments: 

 

• Send paper comments to Vanessa A. Countryman, Secretary, Securities and Exchange 

Commission, 100 F Street NE, Washington, DC 20549-1090. 

All submissions should refer to File Number S7-11-19.  This file number should be 

included on the subject line if email is used.  To help us process and review your comments more 

efficiently, please use only one method.  We will post all comments on our internet website 

(https://www.sec.gov/rules/proposed.shtml).  Comments are also available for website viewing 

and printing in our Public Reference Room, 100 F Street NE, Washington, DC 20549 on official 

business days between the hours of 10:00 a.m. and 3:00 p.m.  All comments received will be 

posted without change.  Persons submitting comments are cautioned that we do not redact or edit 

personal identifying information from comment submissions.  You should submit only 

information that you wish to make available publicly. 

We or the staff may add studies, memoranda, or other substantive items to the comment 

file during this rulemaking.  A notification of the inclusion in the comment file of any such 

materials will be made available on our website.  To ensure direct electronic receipt of such 

notifications, sign up through the “Stay Connected” option at www.sec.gov to receive 

notifications by email. 

FOR FURTHER INFORMATION CONTACT:  Sandra Hunter Berkheimer or Elliot Staffin, 

Office of Rulemaking, at (202) 551-3430, in the Division of Corporation Finance, U.S. Securities 

and Exchange Commission, 100 F Street NE, Washington, DC 20549. 



3 
 

SUPPLEMENTARY INFORMATION:  We are proposing to amend 17 CFR 229.101 (“Item 

101”), 17 CFR 229.103 (“Item 103”), and 17 CFR 229.105 (“Item 105”) of 17 CFR 229.10 et 

seq. (“Regulation S-K”) under the Securities Act of 1933 (the “Securities Act”) and the 

Securities Exchange Act of 1934 (the “Exchange Act”). 

Table of Contents 

 INTRODUCTION AND BACKGROUND I.

 DESCRIPTION OF THE PROPOSED AMENDMENTS II.

A. General Development of Business (Item 101(a))  

B. Narrative Description of Business (Item 101(c))  

C. Legal Proceedings (Item 103)  

D. Risk Factors (Item 105)  

 GENERAL REQUEST FOR COMMENTS III.

 ECONOMIC ANALYSIS IV.

A. Baseline and Affected Parties 

B. Potential Costs and Benefits 

C. Anticipated Effects on Efficiency, Competition, and Capital Formation 

D. Alternatives 

E. Request for Comments 

 PAPERWORK REDUCTION ACT V.

A. Summary of the Collections of Information 

B. Summary of the Proposed Amendments’ Effects on the Collections of Information 

C. Incremental and Aggregate Burden and Cost Estimates for the Proposed 
Amendments 

 REGULATORY FLEXIBILITY ACT CERTIFICATION VI.

 SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT VII.

 STATUTORY AUTHORITY AND TEXT OF PROPOSED RULE AND FORM VIII.
AMENDMENTS 

 

INTRODUCTION AND BACKGROUND I. 

We are proposing amendments to modernize the description of business (Item 101), legal 



4 
 

proceedings (Item 103), and risk factor (Item 105) disclosure requirements in Regulation S-K.  

We are proposing amendments to these items to improve these disclosures for investors and to 

simplify compliance for registrants.1 

Pursuant to Section 108 of the Jumpstart Our Business Startups Act (“JOBS Act”), 2 the 

Commission staff prepared the Report on Review of Disclosure Requirements in Regulation S-K 

(“S-K Study”),3 which recommended that the Commission conduct a comprehensive evaluation 

of its disclosure requirements.  Based on the S-K Study’s recommendation, the staff initiated an 

evaluation of the information our rules require registrants to disclose, how this information is 

presented, where this information is disclosed, and how we can better leverage technology as 

part of these efforts (collectively, the “Disclosure Effectiveness Initiative”).4  The overall 

objective of the Disclosure Effectiveness Initiative is to improve our disclosure regime for both 

investors and registrants. 

                                                 
1  The proposed amendments are also consistent with and further promote the objectives of the Fixing America’s 

Surface Transportation Act (“FAST Act”).  See Pub. L. No. 114-94, 129 Stat. 1312 (Dec. 4, 2015) (requiring, 
among other things, that the SEC conduct a study, issue a report and issue a proposed rule on the modernization 
and simplification of Regulation S-K).  In the Report on Modernization and Simplification of Regulation S-K, 
the staff recommended that the Commission consider combining the description of material physical properties 
required in Item 102 with the description of business in Item 101(c).  See Report on Modernization and 
Simplification of Regulation S-K (Nov. 23, 2016), available at https://www.sec.gov/reportspubs/sec-fast-act-
report-2016.pdf.  The Commission considered the staff recommendation, but did not propose to combine Item 
102 with Item 101.  See FAST Act Modernization and Simplification of Regulation S-K, Release No. 33-10425 
((Oct. 11, 2017) [82 FR 50988 (Nov. 2, 2017)].  Instead, the Commission adopted amendments to Item 102 to 
emphasize the materiality standard applicable to that disclosure, while preserving the industry-specific 
instructions to that Item.  See FAST Act Modernization and Simplification of Regulation S-K, Release No. 33-
10618 (Mar. 20, 2019) [84 FR 12674 (April 2, 2019 )] (“FAST Act Adopting Release”).  We believe that, in 
light of our proposed amendments to Item 101, combining the two items would not improve registrants’ 
business disclosure or simplify compliance. 

2  Pub. L. No. 112-106, Sec. 108, 126 Stat. 306 (2012).  Section 108 of the JOBS Act required the Commission to 
conduct a review of Regulation S-K to determine how such requirements can be updated to modernize and 
simplify the registration process for emerging growth companies.   

3  See Report on Review of Disclosure Requirements in Regulation S-K (Dec. 2013), available at 
https://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf (“S-K Study”).   

4  See SEC Spotlight on Disclosure Effectiveness, available at https://www.sec.gov/spotlight/disclosure-
effectiveness.shtml.  



5 
 

In connection with the S-K Study and the launch of the Disclosure Effectiveness 

Initiative, the Commission staff received public input on how to improve registrant disclosures.5  

In a separate Concept Release issued in 2016,6 the Commission staff revisited the business and 

financial disclosure requirements in Regulation S-K and requested public comment on whether 

they provide the information that investors need to make informed investment and voting 

decisions, and whether any of our rules have become outdated or unnecessary. 

In developing the proposed amendments, we considered input from comment letters we 

received in response to these disclosure modernization efforts.7  We also took into account the 

staff’s experience with Regulation S-K arising from the Division of Corporation Finance’s 

disclosure review program and changes in the regulatory and business landscape since the 

adoption of Regulation S-K. 

Regulation S-K was adopted in 1977 to foster uniform and integrated disclosure for 

registration statements under both the Securities Act and the Exchange Act, and other Exchange 

Act filings, including periodic and current reports.8  In 1982, the Commission expanded and 

                                                 
5  In connection with the S-K Study, we received public comments on regulatory initiatives to be undertaken in 

response to the JOBS Act.  See Comments on SEC Regulatory Initiatives Under the JOBS Act: Title I – Review 
of Regulation S-K, available at http://www.sec.gov/comments/jobs-title-i/reviewreg-sk/reviewreg-sk.shtml.  To 
facilitate public input on the Disclosure Effectiveness Initiative, members of the public were invited to submit 
comments.  See Request for Public Comment, available at http://www.sec.gov/spotlight/disclosure-
effectiveness.shtml.  Public comments received to date on the topic of Disclosure Effectiveness are available on 
our website.  See Comments on Disclosure Effectiveness, available at 
https://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness.shtml.  We refer to these letters 
throughout as “Disclosure Effectiveness” letters. 

6  See Business and Financial Disclosure Required by Regulation S-K, Release No. 33-10064 (Apr. 13, 2016) [81 
FR 23915 (Apr. 22, 2016)] (“Concept Release”). 

7  Unless otherwise indicated, comments cited in this release are to the public comments on the Concept Release, 
supra note 6, which are available at https://www.sec.gov/comments/s7-06-16/s70616.htm. 

8  The Commission adopted the initial version of Regulation S-K following issuance of the report by the Advisory 
Committee on Corporate Disclosure led by former Commissioner A. A. Sommer, Jr., which recommended 
adoption of a single integrated disclosure system.  See Report of the Advisory Committee on Corporate 
Disclosure to the Securities and Exchange Commission, Cmte. Print 95-29, House Cmte. On Interstate and 
Foreign Commerce, 95th Cong., 1st. Sess (Nov. 3, 1977) (“Report of the Advisory Committee”), available at 



6 
 

reorganized Regulation S-K to be the central repository for its non-financial statement disclosure 

requirements.9  The Commission’s goals in adopting integrated disclosure were to revise or 

eliminate overlapping or unnecessary disclosure requirements wherever possible, thereby 

reducing burdens on registrants and enhancing readability without affecting the provision of 

information material to an investment decision.10 

The Commission adopted line-item requirements in Regulation S-K to elicit specific 

disclosure within broad categories of information material to an investment decision.  Some of 

these requirements provide registrants with the flexibility to determine the disclosure that is 

material to an investment decision.11  These disclosure requirements are often referred to as 

“principles-based” because they articulate a disclosure concept rather than a specific line-item 

requirement.12  Principles-based rules rely on a registrant’s management to evaluate the 

significance of information in the context of the registrant’s overall business and financial 

                                                                                                                                                             
http://3197d6d14b5f19f2f440-
5e13d29c4c016cf96cbbfd197c579b45.r81.cf1.rackcdn.com/collection/papers/1970/1977_1103_AdvisoryDisclo
sure.pdf.  This version of Regulation S-K included only two disclosure requirements—a description of business 
and a description of properties.  See Concept Release, supra note 6, and accompanying text. 

9  See Adoption of Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16, 
1982)] (“1982 Integrated Disclosure Adopting Release”).   

10  See id. 

11  On several occasions, the Commission has reiterated that its requirements seek disclosure of information 
material to an investment decision.  See, e.g., Commission Guidance Regarding Disclosure Related to Climate 
Change, Release No. 33-9106 (Feb. 8, 2010) [75 FR 6290 (Feb. 8, 2010)] (“Climate Change Release”) at 6292-
6293 (reiterating that information is material if there is a substantial likelihood that a reasonable investor would 
consider it important in deciding how to vote or make an investment decision, or, put another way, if the 
information would alter the total mix of available information); Statement of the Commission Regarding 
Disclosure of Year 2000 Issues and Consequences by Public Companies, Investment Advisers, Investment 
Companies, and Municipal Securities Issuers, Release No. 33-7558 (July 29, 1998) [63 FR 41394 (Aug. 4, 
1998)] at 41395 (stating that our disclosure framework requires companies to disclose material information that 
enables investors to make informed investment decisions).  

12  See Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 FR 
53157 (Sept. 8, 2006)] (“As described in the Proposing Release and as adopted, the Compensation Discussion 
and Analysis requirement is principles-based, in that it identifies the disclosure concept and provides several 
illustrative examples.”). 



7 
 

circumstances and to determine whether disclosure is necessary.13  As the Commission stated in 

the Concept Release, emphasizing principles-based disclosure may allow a registrant to more 

effectively tailor its disclosure to provide the information about its specific business and 

financial condition that is material to an investment decision and in turn may reduce the amount 

of disclosure that may be irrelevant, outdated or immaterial.14  

In contrast, some line-item requirements in Regulation S-K employ bright-line, 

quantitative thresholds to specify when disclosure is required, or require all registrants to 

disclose the same type of information.  These requirements are sometimes referred to as 

“prescriptive” disclosure requirements because they do not rely on management’s judgment to 

determine when disclosure is required.  The benefits of prescriptive disclosure requirements can 

include comparability, consistency, and ease in determining when information must be 

disclosed.15   

The Concept Release sought input on whether our disclosure requirements should be 

more principles-based, prescriptive, or a combination of both.  Many commenters supported a 

more principles-based approach16 while other commenters supported some combination of both 

                                                 
13    See Report of the Advisory Committee, supra note 8 (“Although the initial materiality determination is 

management’s, this judgment is, of course, subject to challenge or question by the Commission or in the 
courts.”).   

14  See Concept Release, supra note 6. 

15    See id.  For a discussion of the potential economic effects of switching from a prescriptive to a more principles-
based disclosure requirement, including a potential loss of comparability, see infra Sections IV.B.1 and 2 and 
IV.D.  

16  See letters from R.G. Associates, Inc. (July 6, 2016) (“RGA”), American Bankers Association (July 15, 2016), 
Deloitte & Touche LLP (July 15, 2016) (“Deloitte”), New York State Society of Certified Public Accountants 
(July 19, 2016) (“NYSSCPA”), U.S. Chamber of Commerce (July 20, 2016) (“Chamber”), BDO USA LLP 
(July 20, 2016) (“BDO”), Corporate Governance Coalition for Investor Value (July 20, 2016)  (“CGCIV”), 
International Integrated Reporting Council (July 20, 2016) (“IIRC”), Railpen Investments (July 21, 2016) 
(“Railpen”), National Association of Manufacturers (July 21, 2016) (“NAM”), American Chemistry Council 
(July 19, 2016) (“ACC”), The American Petroleum Institute (July 21, 2018) (“API”), Business Roundtable (July 
21, 2016), UnitedHealth Group, Inc. (July 21, 2016) (“United Health”), Center for Audit Quality (July 21, 
2016) (“CAQ”), Securities Industry and Financial Markets Association (July 21, 2016) (“SIFMA”), Ernst & 



8 
 

principles-based and prescriptive rules.17          

We are proposing amendments to Items 101, 103, and 10518 in light of the many changes 

that have occurred in our capital markets and the domestic and global economy in the more than 

30 years since their adoption, including changes in the mix of businesses that participate in our 

public markets, changes in the way businesses operate, which may affect the relevance of current 

disclosure requirements, changes in technology (in particular the availability of information), and 

changes such as inflation that have occurred simply with the passage of time.19  For example, 

                                                                                                                                                             
Young LLP (July 21, 2016) (“E&Y”), PNC Financial Services Group (July 21, 2016) (“PNC”), Edison Electric 
Institute and American Gas Association (July 21, 2016) (“EEI and AGA”), Grant Thornton LLP (July 21, 2016) 
(“Grant”), KPMG LLP (July 21, 2016) (“KPMG”), PricewaterhouseCoopers LLP (July 21, 2016) (“PWC”), 
Cornerstone Capital Inc. (July 21, 2016) (“Cornerstone”), Crowe Horwath LLP (July 21, 2016) (“Crowe”), 
America Gas Association (July 21, 2016) (“AGA”), Prologis, Inc. (July 21, 2016) (“Prologis”), National 
Association of Real Estate Investment Trusts (July 21, 2016) (“NAREIT”), Allstate Insurance Company (July 
21, 2016) (“Allstate”), Davis Polk & Wardwell LLP (July 22, 2016) (“Davis”), Chevron Corporation (July 22, 
2016) (“Chevron”), Fenwick West LLP (Aug. 1, 2016) (“Fenwick”), Reardon Firm (Aug. 3, 2016) (“Reardon”), 
National Investor Relations Institute (Aug. 4, 2016) (“NIRI”), Sullivan & Cromwell LLP (Aug. 9, 2016), Exxon 
Mobil Corporation (Aug. 9, 2016), FedEx Corporation (July 21, 2016) (“FedEx”), Institute of Management 
Accountants (July 29, 2016), Shearman & Sterling LLP (Aug. 31, 2016) (“Shearman”), Nasdaq, Inc. (Sept. 16, 
2016) (“Nasdaq”), Northrop Grumman Corporation (Sept. 27, 2016), General Motors Company (Sept. 30, 
2016) (“General Motors”) and Financial Executives International (Oct. 3, 2016) (“Financial Executives 
International”). 

17  See letters from Council of Institutional Investors (July 8, 2016) (“CII”), Railpen, New York State Comptroller 
(July 21, 2016) (“NYSC”), California State Teachers’ Retirement System (July 21, 2016) (“CalSTRS”), 
Pension Investment Association of Canada (July 17, 2016), Medical Benefits Trust (July 15, 2016) (“Medical 
Benefits Trust”), Principles for Responsible Investment (July 19, 2016) (“PRI”), Legal & General Investment 
Management (July 20, 2016) (“LGIM”), Walden Asset Management (July 19, 2016) (“Walden”), SEC Investor 
Advisory Committee (June 15, 2016) (“IAC”), AFLAC (July 19, 2016) (“AFLAC”), Domini Social 
Investments LLC (July 21, 2016) (“Domini Social”), NYC Comptroller (July 21, 2016) (“NYC Comptroller”), 
AFL-CIO (July 21, 2016) (“AFL-CIO”), California Public Employees’ Retirement System (July 21, 2016) 
(“CalPERS”), British Columbia Investment Management Corporation (July 21, 2016), Stephen Percoco (July 
24, 2016) (“S. Percoco”), Americans for Financial Reform (Aug. 10, 2016) (“Americans for Financial Reform”) 
and CFA Institute (Oct. 6, 2016) (“CFA Institute”).  Four commenters supported a combination that emphasized 
a principles-based approach (Walden, AFLAC, Ball Corporation (July 19, 2016) (“Ball Corporation”) and S. 
Percoco) and seven commenters supported a combination that emphasized a prescriptive approach (IAC, NYC 
Comptroller, American Federation of State, County and Municipal Employees (July 21, 2016) (“AFSCME”), 
Maryland State Bar Association (July 21, 2016) (“Maryland Bar Securities Committee”), AFL-CIO, Americans 
for Financial Reform and CFA Institute). 

18   The Commission recently rescinded Item 503(c) of Regulation S-K and replaced it with new Item 105 of 
Regulation S-K.  See FAST Act Adopting Release, supra note 1. 

19   See infra note 279 (noting that while Items 101, 103, and 105 have not undergone significant revisions in over 30 
years, many characteristics of the registrants have changed substantially over this time period).      



9 
 

Item 101 mandates certain disclosures that may be outdated while Item 103 includes a dollar 

threshold for proceedings related to environmental protection laws that was set in 1982.20  

Further, numerous commenters cited the risk factor disclosure requirements as needing 

improvement.21  We believe that modernizing these disclosure items would result in improved 

disclosure, tailored to reflect registrants’ particular circumstances, and reduce disclosure costs 

and burdens. 

For each of the disclosure requirements addressed in this release, we considered the 

merits and drawbacks of pursuing a principles-based versus prescriptive approach.  We also 

considered each requirement as a component of a broader framework that will achieve the 

disclosure objectives of the Securities Act and the Exchange Act in the most effective and 

efficient manner.  As discussed in greater detail in Section II below, we propose to revise Items 

101(a) (description of the general development of the business), 101(c) (narrative description of 

the business), and 105 (risk factors) to emphasize a principles-based approach because the 

current disclosure requirements may not reflect what is material to every business, and, as past 

developments have demonstrated, disclosure requirements, and in particular prescriptive 

disclosure requirements, can become outdated in these areas.  We believe this approach would 

elicit more relevant disclosures about these items.  In contrast, we are proposing a more 

prescriptive approach for Item 103 because that requirement depends less on the specific 

characteristics of individual registrants. 

                                                 
20  See id. 

21  See, e.g., letters from CAQ, AFLAC, Chamber, FedEx, CGCIV, NAM, ACC, SIFMA, E&Y, EEI and AGA, 
Wilson Sonsini Goodrich & Rosati (July 21, 2016) (“Wilson Sonsini”), NAREIT, Davis, Fenwick, NIRI, 
Shearman, PWC, General Motors, and Financial Executives International. 



10 
 

Our proposed amendments would:22 

• Revise Item 101(a) to be largely principles-based, requiring: 

o Disclosure of information material23 to an understanding of the general 

development of the business and eliminating a prescribed timeframe for 

this disclosure; and   

o In filings made after a registrant’s initial filing, only an update of the 

general development of the business with a focus on material 

developments in the reporting period with a hyperlink to the registrant’s 

most recent filing (e.g., initial registration statement or more recent filing 

if one exists) that, together with the update, would contain the full 

discussion of the general development of the registrant’s business.  

• Revise Item 101(c) to: 

o Clarify and expand its principles-based approach, with disclosure topics 

drawn from a subset of the topics currently contained in Item 101(c); 

o Include, as a disclosure topic, human capital resources, including any 

human capital measures or objectives that management focuses on in 

                                                 
22  We are also proposing amendments to Item 101(h) of Regulation S-K [17 CFR 229.101(h)], which permits a 

smaller reporting company to fulfill its disclosure obligations under Item 101, including with respect to its 
business development, by providing the disclosure specified under paragraph (h).  “Smaller reporting company” 
is defined in 17 CFR 229.10(f) as an issuer that is not an investment company, an asset-backed issuer (as 
defined in 17 CFR 229.1101), or a majority-owned subsidiary of a parent that is not a smaller reporting 
company and that: (i) had a public float of less than $250 million; or (ii) had annual revenues of less than $100 
million and either: (A) no public float; or (B) a public float of less than $700 million.  Business development 
companies, which are a type of investment company, are not eligible to be smaller reporting companies.  See, 
e.g., Smaller Reporting Company Regulatory Relief and Simplification, Release No. 33-8819 ((July 5, 2007) [72 
FR 39670 (July 19, 2007)], at 39674. 

23   Information is material if there is a substantial likelihood that a reasonable investor would consider the 
information important in deciding how to vote or make an investment decision.  See supra note 14 and 
accompanying text.    



11 
 

managing the business, to the extent such disclosures would be material to 

an understanding of the registrant’s business; and  

o Refocus the regulatory compliance requirement by including material 

government regulations, not just environmental laws, as a topic. 

• Revise Item 103 to: 

o Expressly state that the required information may be provided by 

including hyperlinks or cross-references to legal proceedings disclosure 

located elsewhere in the document in an effort to encourage registrants to 

avoid duplicative disclosure; and 

o Revise the $100,000 threshold for disclosure of environmental 

proceedings to which the government is a party to $300,000 to adjust for 

inflation. 

• Revise Item 105 to: 

o Require summary risk factor disclosure if the risk factor section exceeds 

15 pages; 

o Refine the principles-based approach of Item 105 by changing the 

disclosure standard from the “most significant” factors to the “material” 

factors; and  

o Require risk factors to be organized under relevant headings, with any risk 

factors that may generally apply to an investment in securities disclosed at 

the end of the risk factor section under a separate caption.24 

                                                 
24   The proposed amendments to Items 101 and 103 will affect only domestic registrants and “foreign private 

issuers” that have elected to file on domestic forms.  This is because Regulation S-K does not apply to foreign 
private issuers unless a form reserved for foreign private issuers (such as Securities Act Form F-1, F-3, or F-4) 



12 
 

We welcome feedback and encourage interested parties to submit comments on any or all 

aspects of the proposed amendments.  When commenting, it would be most helpful if you 

include the reasoning behind your position or recommendation. 

DESCRIPTION OF THE PROPOSED AMENDMENTS II. 

A. General Development of Business (Item 101(a)) 

Item 101(a) of Regulation S-K requires a description of the general development of the 

business of the registrant during the past five years, or such shorter period as the registrant may 

have been engaged in business.25  In describing the general development of the business, Item 

101(a)(1) requires disclosure of the following:  

• The year in which the registrant was organized and its form of organization;  

• The nature and results of any bankruptcy, receivership or similar proceedings with 

respect to the registrant or any of its significant subsidiaries;  

• The nature and results of any other material reclassification, merger or 

consolidation of the registrant or any of its significant subsidiaries;  

• The acquisition or disposition of any material amount of assets otherwise than in 

the ordinary course of business; and  

• Any material changes in the mode of conducting the business.26 

                                                                                                                                                             
specifically refers to Regulation S-K.  Instead of Items 101 and 103, the foreign private issuer forms refer to 
Part I of Form 20-F.  See, e.g., Item 4.a. of Form F-1.  In contrast, the proposed amendment to Item 105 will 
affect both domestic and foreign registrants because Forms F-1, F-3, and F-4, like their domestic counterparts, 
all refer to that Item.  See, e.g., Item 3 of Form F-1.  A foreign private issuer is any foreign issuer other than a 
foreign government, except for an issuer that (1) has more than 50% of its outstanding voting securities held of 
record by U.S. residents; and (2) any of the following: (i) a majority of its officers and directors are citizens or 
residents of the United States; (ii) more than 50% of its assets are located in the United States; or (iii) its 
business is principally administered in the United States.  17 CFR 230.405.  See also 17 CFR 240.3b-4(c). 

25   17 CFR 229.101(a).  Item 101(a) states that information shall be disclosed for earlier periods if material to an 
understanding of the general development of the business.   

26  17 CFR 229.101(a). 



13 
 

The Concept Release solicited input on whether the disclosure provided under this Item 

continues to be useful and how this Item might be improved.27  A number of commenters 

recommended eliminating or streamlining the requirements in Item 101(a).28  Several of these 

commenters recommended limiting Item 101(a) disclosure to material developments,29 and a few 

commenters supported executive summaries and layering techniques for the business section.30   

In light of the feedback received, we are proposing amendments to Item 101(a)(1) that 

would provide more flexibility to tailor disclosures to the unique circumstances of each 

registrant, which in turn could result in improved disclosures for investors.  In addition, for 

filings other than initial registration statements, we are proposing to require only material 

updates to this disclosure.   

1. Eliminate Prescribed Timeframe 
 

Item 101(a) requires a description of the general development of the registrant’s business 

during the past five years, or such shorter period as the registrant may have engaged in 

business.31  A requirement to provide a brief outline of the general development of the business 

for the preceding five years was included in the earliest form requirements for registration 

statements and annual reports,32 and the first version of Regulation S-K adopted in 1977 included 

                                                 
27  See Concept Release, supra note 6, at 23932. 

28  See letters from Allstate, Chamber, FedEx, CGCIV, EEI and AGA, Fenwick, NAREIT, NIRI, NYSSCPA, 
PNC, SIFMA, Davis, General Motors, and Financial Executives International.  

29  See letters from NAREIT, PNC, SIFMA, and Fenwick. 

30  See letters from Deloitte and CAQ. 

31  17 CFR 229.101(a). 

32  See, e.g., Item 6 of Form A-2 adopted in 1935, which required registrants to outline briefly “the general 
development of the business for the preceding five years.”  See Release No. 33-276 (Jan. 14, 1935) [not 
published in the Federal Register].  Additionally, Item 5 of Form A-1, adopted in 1933, required registrants to 
briefly describe the length of time the registrant had been engaged in its business.  See Release No. 33-5 (July 6, 
1933) [not published in the Federal Register].  See also S-K Study, supra note 3 at 32, n. 88. 



14 
 

a requirement to describe the development of the registrant’s business during the prior five years, 

or such shorter period as the registrant may have been in business.33 

The Concept Release solicited comments on whether the current five-year timeframe for 

this disclosure is appropriate, or whether a shorter or longer timeframe should be considered.34  

Several commenters recommended reducing the five-year timeframe for disclosure to a two- or 

three-year timeframe, or permitting well-established companies to provide the information 

through other means (such as a filer information page on the company’s website) with updates 

only required every three years or more frequently if there has been a substantial change.35  One 

of these commenters suggested linking the timeframe to the two years presented in the financial 

statements to allow users to focus on material events in the current period.36  Some of these 

commenters noted that this information does not change significantly from year to year and 

indicated that repeating these disclosures each year, especially for well-established companies, 

provides limited value to investors and may potentially obscure or distract from more important 

information included in the document.37 

We do not think it is necessary to prescribe a timeframe for which registrants should 

provide disclosure regarding the general development of their business.  The currently required 

five-year timeframe may not elicit the most relevant disclosure for every registrant.  Some 

                                                 
33    See Adoption of Disclosure Regulation and Amendments of Disclosure Forms and Rules, Release No. 33-5893 

(Dec. 23, 1977) [42 FR 65554 (Dec. 30, 1977)]. 

34  See Concept Release, supra note 6. 

 

35    See letters from Allstate, NYSSCPA, and EEI and AGA.  

36  See letter from Allstate.  

37  See letters from EEI and AGA. 



15 
 

registrants may prefer to describe the development of their business over a longer period in order 

to provide the information that may be material to an investment decision, while others may 

conclude that the material aspects of their business development can be described over a shorter 

timeframe.  We are proposing to revise Item 101(a) to eliminate the five-year disclosure 

timeframe and require registrants to focus on the information material to an understanding of the 

development of their business, irrespective of a specific timeframe.  For similar reasons, we are 

also proposing to revise Item 101(h) to eliminate the provision that currently requires smaller 

reporting companies to describe the development of their business during the last three years.38  

We believe that these proposed revisions would result in disclosure of information that is 

material to investors’ understanding of the development of a registrant’s business while reducing 

outdated and irrelevant disclosure.  

2. Require Only Updated Disclosure in Subsequent Filings 
 

Currently registrants are required to provide disclosure regarding the general 

development of the business in registration statements and annual reports.39  The Concept 

Release sought comment on whether to allow registrants to omit this disclosure from filings 

other than the initial Securities or Exchange Act registration statement filed by the registrant and 

instead disclose only material changes in subsequent reports.40   

Several commenters recommended revising the requirement to distinguish between new 

and established registrants, stating that much of the disclosure required under this Item is 

                                                 
38   We are proposing only to eliminate the required timeframe in Item 101(h).  We are, however, proposing to retain 

the requirement that if a smaller reporting company has not been in business for three years, it must provide the 
same information for its predecessors if there are any.   

39  See 17 CFR 229.101(a). 

40  See Concept Release, supra note 6. 



16 
 

redundant for registrants already subject to the reporting requirements.41  Many of these 

commenters supported limiting the full disclosure required by Item 101(a) to the initial filing and 

only requiring disclosure of material changes in subsequent filings,42 with a few of these 

commenters supporting the use of cross-references or hyperlinks to either the prior full 

disclosure or the relevant Form 8-K43 reports of material developments.44  A few commenters 

opposed limiting the full disclosure required by Items 101(a) and 101(c) to initial filings with 

follow-up disclosure of material changes in subsequent filings based on the belief that such a 

revision would require investors to search through multiple filings in a time-consuming attempt 

to understand the current state of a registrant’s business development and operations.45   

We propose to retain the requirement for registrants to describe the general development 

of the business in initial registration statements under the Securities Act and Exchange Act.46  

For filings subsequent to a registrant’s initial registration statement, we propose revising Item 

101(a)(1) to require an update of this disclosure, with a focus on material developments, if any, 

in the reporting period, including if the business strategy has changed.47  We also propose to 

                                                 
41  See letters from Chamber, FedEx, CGCIV, EEI and AGA, PNC, and SIFMA. 

42  See letters from SIFMA, PNC, Allstate, and Fenwick. 

43  17 CFR 249.308. 

44  See letters from SIFMA and PNC. 

45  See letter from Maryland Bar Securities Committee; see also letter from RGA (stating that it is not always 
possible to fully understand a registrant’s business if its business development must be ascertained from a 
variety of sources). 

46  Although, as discussed below, we propose to amend Item 101(a)(1), we are retaining Item 101(a)(2) and 
redesignating it as Item 101(a)(3). 

47  Registrants are currently permitted to provide Item 101(a) disclosure by incorporating by reference some or all 
of the required disclosure from a previous filing pursuant to Securities Act Rule 411 (17 CFR 230.411) or 
Exchange Act Rule 12b-23 (17 CFR 240.12b-23).  Therefore, our proposal to require only an update of the Item 
101(a)(1) disclosure in a filing made subsequent to a registrant’s initial registration statement is a clarification 
of our existing rules rather than a substantive change. 



17 
 

require that, pursuant to § 230.411 or § 240.12b-23, a registrant incorporate by reference, and 

include an active hyperlink48 to, the most recently filed disclosure that, together with the update, 

would present a full discussion of the general development of its business.49  Under this 

approach, a reader would have access to a full discussion by reviewing the updated disclosure 

and one hyperlinked disclosure.50  As noted by one commenter, registrants often repeat 

information from year-to-year in annual reports on Form 10-K,51 with this disclosure changing 

very little from filing to filing.52  This commenter also observed that there is no need for 

registrants to include this disclosure in both registration statements and annual reports as 

investors can easily access information about the general development of business through 

company websites or the Commission’s EDGAR system, which was not the case when 

Regulation S-K was first adopted.53  Because repetitive information may obscure more important 

information, we believe the proposed amendments would help focus investor attention on 

material developments in the reporting period.  By also requiring that a registrant use one 

hyperlink to connect the updated disclosure with the previous disclosure, which together would 

result in a full discussion of its general business development, the amendment as proposed would 

help limit any burdensome effect on investors caused by this discussion being located in more 

                                                 
48  The SEC Investor Advisory Committee has recommended the use of hyperlinks to reduce redundant disclosure 

in SEC filings.  See letter from IAC.   

49  The Commission recently revised Rules 411 and 12b-23 to require the inclusion of an active hyperlink to 
information incorporated into a registration statement or report by reference if such information is publicly 
available on the Commission’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”).  See 
FAST Act Adopting Release, supra note 1 at 12694-12695. 

50  Alternatively, a registrant may elect to provide a complete discussion of its business development, including  
material updates, in which case no hyperlink would be required.  

51  17 CFR 249.310. 

52  See letter from PNC. 

53  See id. 



18 
 

than one document.54 

3. Include Material Changes to Business Strategy as Potential Disclosure 
Topic 

 
We are proposing to amend Item 101(a)(1) to be more principles-based by providing a 

non-exclusive list of the types of information that a registrant may need to disclose, and by 

requiring disclosure of a topic only to the extent such information is material to an understanding 

of the general development of a registrant’s business.55  We believe that such an approach would 

elicit material disclosure for investors while also providing the flexibility to tailor the disclosure 

to reflect the circumstances of each registrant.   

Three of the four matters that we are proposing to list as disclosure topics are currently 

covered in Item 101(a)(1): 

• Material bankruptcy, receivership, or any similar proceeding;  

• The nature and effects of any material reclassification, merger or consolidation of 

the registrant or any of its significant subsidiaries; and 

• The acquisition or disposition of any material amount of assets otherwise than in 

the ordinary course of business.   

We are also proposing to include as a listed disclosure topic, to the extent material to an 

understanding of the registrant’s business, transactions and events that affect or may affect the 

company’s operations, including material changes to a registrant’s previously disclosed business 

                                                 
54  For similar reasons, we are proposing to permit a smaller reporting company, for filings other than initial 

registration statements, to provide an update to the general development of the business disclosure, instead of a 
full discussion, that complies with proposed Item 101(a)(2), including the proposed hyperlink requirement.  See 
the proposed amendment of Item 101(h). 

55  Proposed Item 101(a) refers to materiality in the introductory language of paragraph (a)(1).  While materiality is 
repeated in three of the four listed topics that follow, this is not intended to create a second or different analysis 
regarding materiality for any such topic.  



19 
 

strategy.  Item 101(a) does not currently require disclosure of material changes to a registrant’s 

previously disclosed business strategy.  The Concept Release solicited input on whether Item 

101(a) should be revised to require the disclosure of a registrant’s business strategy; whether 

investors would find such disclosure important or useful and, if so, whether this requirement 

should be included in Management’s Discussion and Analysis (“MD&A”);56 and whether 

“business strategy” should be defined.57  Commenters were divided on whether disclosure of a 

registrant’s business strategy should be a requirement.58  Most of the commenters that opposed a 

mandatory business strategy disclosure requirement did so on the grounds that because a 

registrant’s business strategy could be proprietary, its disclosure could cause competitive harm.59 

Many registrants currently include disclosure regarding their business strategy in their 

initial registration statements.  We believe that information regarding material changes to a 

previously disclosed business strategy may be material information for investors.  We are 

therefore proposing to include material changes to a registrant’s previously disclosed business 

strategy as a listed disclosure topic under Item 101(a).  However, if a registrant has not 

previously disclosed its business strategy, we are not proposing to make the disclosure of that 

strategy mandatory in a Commission filing because of the concerns raised by commenters that 

such a requirement could force registrants to disclose proprietary information that could be 

                                                 
56  Item 303(a) [17 CFR 229.303(a)]. 

57  See Concept Release, supra note 6. 

58  Several commenters supported requiring disclosure of a registrant’s business strategy.  See, e.g., letters from 
IIRC, NEI Investments (July 21, 2016), NYSSCPA, PRI, S. Percoco, AFL-CIO and International Corporate 
Accountability Roundtable (July 19, 2016).  Other commenters opposed requiring disclosure of a registrant’s 
business strategy.  See letters from Allstate, Fenwick, Maryland Bar Securities Committee and CFA Institute, 
although CFA Institute supported voluntary disclosure of a registrant’s business strategy. 

59  See letters from Allstate, Fenwick, and Maryland Bar Securities Committee. 



20 
 

harmful to their competitive position.60   

To the extent that other matters beyond those listed in the amended item are material to 

an understanding of the general development of a registrant’s business, the registrant would be 

required to disclose those matters as well.   

Request for Comment 

Is a prescribed timeframe for disclosure regarding the general development of a 1. 

registrant’s business necessary or desirable?  If we should retain a prescribed 

timeframe, is the current five-year timeframe appropriate, or should it be longer or 

shorter? 

Alternatively, should we require a more detailed discussion of a registrant’s general 2. 

development of business on a periodic basis, such as every three years, and summary 

disclosure in other years?  If so, would three years be an appropriate period, or 

should it be shorter or longer? 

For filings other than initial registration statements, should we no longer require a 3. 

full discussion of the general development of the registrant’s business, and require 

instead an update to the general development of the business disclosure with a focus 

on material developments in the reporting period, as proposed?   

When only updated business disclosure is provided in a filing, should we require the 4. 

incorporation by reference of, and active hyperlink to, the most recently filed 

disclosure that, together with the update, would present a full discussion of the 

general development of a registrant’s business, as proposed?  Would such an 

approach, which would enable a reader to review the updated disclosure and one 

                                                 
60  See, e.g., letter from Fenwick.21 
 

hyperlinked disclosure, facilitate an investor’s understanding of the general 

development of a registrant’s business?  

Would registrants find it difficult to apply the proposed principles-based 5. 

requirements?  How could we alleviate any expected difficulties? 

Would principles-based requirements for Item 101(a) effectively facilitate the 6. 

provision of information that is material to an investment decision?  If not, how 

might Item 101(a) be further improved? 

 Should we provide a list of topics that may be material to an understanding of a 7. 

registrant’s business development, as proposed?  Are the proposed topics 

(transactions and events that affect or may affect the company’s operations, 

including material changes to a previously disclosed business strategy; bankruptcy, 

receivership, or any similar proceeding; the nature and effects of any other material 

reclassification, merger or consolidation of the registrant or any of its significant 

subsidiaries; and the acquisition or disposition of a material amount of assets other 

than in the ordinary course of business) appropriate?  Should we exclude any of our 

proposed topics?  Are there other topics that should be added (e.g., material changes 

in the mode of conducting the business)?  Should we require disclosure of any or all 

of the proposed topics in all circumstances? 

Should we make disclosure of business strategy mandatory in Commission filings?  8. 

If so, how should “business strategy” be defined and what can we do to address 

concerns about confidentiality?  

Should we revise Item 101(h) to eliminate the provision that currently requires 9. 

smaller reporting companies to describe the development of their business during the 



22 
 

last three years, as proposed?  Is a prescribed timeframe for such disclosure 

necessary or desirable?  If we should retain a prescribed timeframe, is the current 

three-year timeframe appropriate, or should it be longer or shorter? 

We are proposing to retain the current requirement in Item 101(h) that if a smaller 10. 

reporting company has not been in business for three years, it must provide the same 

information for predecessor(s) of the smaller reporting company if there are any.  

Should we eliminate or adjust this predecessor disclosure requirement for smaller 

reporting companies?  A registrant that is not a smaller reporting company must also 

provide information about its predecessors in certain circumstances under current 

Item 101(a)(2).  Should we eliminate the predecessor disclosure obligations for those 

registrants? 

Should we permit certain registrants to provide the general business development 11. 

disclosure by other means (e.g., by a filer information page on the company’s  

website)?  If so, which registrants?  Should we limit the use of such alternative 

means to well-known seasoned issuers?  Are there concerns raised by the posting of 

the disclosure on a company’s website (e.g., regarding how long the company must 

retain the business development disclosure, when it must update the disclosure, and 

liability issues)?  If so, how should those concerns be resolved?        

B. Narrative Description of Business (Item 101(c))   

 Item 101(c) requires a narrative description of the business done and intended to be done 

by the registrant and its subsidiaries, focusing upon the registrant’s dominant segment or each 

reportable segment about which financial information is presented in the financial statements.  

To the extent material to an understanding of the registrant’s business taken as a whole, the 



23 
 

description of each such segment must include ten specific items listed in Item 101(c) (see Items 

(1)-(10) in the list below).   Item 101(c) specifies two other items that must be discussed with 

respect to the registrant’s business in general (see Items (11)-(12) in the list below), although, 

where material, the registrant must also identify the segments to which those matters are 

significant:61   

(1)  Principal products produced and services rendered; 

(2)  New products or segments; 

(3)  Sources and availability of raw materials; 

(4)  Intellectual property; 

(5)  Seasonality of the business; 

(6)  Working capital practices; 

(7)  Dependence on certain customers; 

(8)  Dollar amount of backlog orders believed to be firm; 

(9)  Business subject to renegotiation or termination of government contracts; 

(10)  Competitive conditions; 

(11)  The material effects of compliance with environmental laws; and 

(12)  Number of employees.62 

The earliest forms of registration statements and annual reports required a brief outline of 

                                                 
61  Item 101(c)(1) [17 CFR 229.101(c)(1)] specifies that, to the extent material to an understanding of the 

registrant’s business taken as a whole, the description of each segment must include the information specified in 
paragraphs  (c)(i) through (x).  Information in paragraphs (c)(xi) through (xiii) is required to be discussed for 
the registrant’s business in general; where material, the segments to which these matters are significant also 
must be identified.   

62  The Commission recently removed and reserved Item 101(c)(1)(xi), which required disclosure of company- and 
customer-sponsored research and development activities, largely because U.S. GAAP requires similar, but 
broader, disclosure.  See Disclosure Update and Simplification Final Rule, Release No. 33-10532 (Aug. 17, 
2018) [83 FR 50148 (Oct. 4, 2018) (“DUSTR Adopting Release”).  Thus, there currently are twelve enumerated 
disclosure items under Item 101(c). 



24 
 

the general character of the business done and intended to be done by a registrant.63  Many of the 

enumerated disclosure requirements in Item 101(c) were adopted in 1973.64  The 1973 adopting 

release noted that, in making investment decisions, venture capitalists and underwriters typically 

obtained specific information from companies about their competitive position and methods of 

competition in their respective industries and, accordingly, the new requirements were expected 

to provide similar information to the investing public.65  At the same time, the Commission also 

added requirements for the disclosure of the amount of backlog orders, the sources and 

availability of raw materials essential to the business, the number of employees and working 

capital practices.66 

In the S-K Study, the staff recommended reviewing the description of business for 

continuing relevance in light of changes that have occurred in the way businesses operate, which 

may make other disclosures relevant that are not expressly addressed under the current 

requirements.67  The Concept Release sought comment on whether Item 101(c) continues to 

provide useful information to investors and how the Item’s requirements may be improved.68  In 

particular, the Concept Release sought comment on the impact of listing the then thirteen 

                                                 
63  See, e.g., Item 5 of Form A-2 adopted in 1935, which required registrants to outline briefly “the general 

character of the business done and intended to be done by the registrant and its subsidiaries.” See Release No. 
33-276 (Jan. 14, 1935) [not published in the Federal Register].  Additionally, Items 3 through 5 of Form A-1, 
adopted in 1933, required registrants to briefly describe “the character of business done or intended to be done,” 
disclose a list of states where the issuer owned property and was qualified to do business, and the length of time 
the registrant had been engaged in its business.  See Release No. 33-5 (July 6, 1933) [not published in the 
Federal Register].  

64  See New Ventures, Meaningful Disclosure, Release No. 33-5395 (June 1, 1973) [38 FR 17202 (June 29, 1973)].   

65  See id.    

66  See id. 

67  See S-K Study, supra note 3, at 99-100.   

68  See Concept Release, supra note 6. 



25 
 

requirements and whether the prescriptive items result in disclosure of information that is not 

important to some registrants.69   

A number of commenters recommended revising Item 101(c) to make it more principles-

based.70  A few commenters recommended emphasizing that the sub-items enumerated in Item 

101(c) are examples only,71 while another commenter recommended revising the Item to specify 

that registrants should consider whether information that does not fall into the enumerated 

examples should nonetheless be disclosed.72  Some commenters recommended retaining the Item 

as it currently stands.73   

Because the 12 items may not be relevant to all registrants, they can elicit disclosure that 

is not material to a particular registrant.  For the most part, Item 101(c) currently provides that a 

registrant must disclose the enumerated items to the extent material to an understanding of the 

registrant’s business taken as a whole.  Based on the comments received that were critical of this 

provision,74 it appears, however, that many registrants may interpret Item 101(c) as requiring 

disclosure of each enumerated item, even if it is not material.  We believe that shifting to an 

updated and more principles-based disclosure framework for Item 101(c) would encourage 

registrants to exercise judgment in evaluating what disclosure to provide, which would result in 

disclosure more appropriately tailored to a registrant’s specific facts and circumstances.   

                                                 
69  See id. 

70  See letters from Chamber, FedEx, CGCIV, BDO, United Health, CAQ, SIFMA, E&Y, Grant, PWC, Allstate, 
Davis, Fenwick, General Motors, Financial Executives International, and CFA Institute.   

71  See letters from SIFMA and Allstate.  

72  See letter from SIFMA. 

73  See letters from RGA, CalSTRS and S. Percoco. 

74  See supra note 70. 



26 
 

The Concept Release further sought comment on whether any of the current requirements 

in Item 101(c) should be presented in a different context, such as MD&A or risk factors.75  A 

number of commenters provided recommendations on the requirement to disclose working 

capital practices.76  Several of these commenters stated that working capital practices might be 

better addressed in MD&A,77 while one commenter suggested eliminating this disclosure from 

Item 101(c) because it is typically addressed in MD&A.78  In addition to being explicitly 

identified as a disclosure item in Item 101(c) for all registrants, Instruction 5 to Item 303(a) 

states that a discussion of working capital may be appropriate in MD&A for certain registrants.79  

In an effort to consolidate working capital disclosure in one location and to avoid duplicative 

disclosure, we do not propose to include working capital practices as a possible topic in Item 

101(c) with the expectation that working capital would be discussed in a registrant’s MD&A, to 

the extent material.  

To facilitate application of our principles-based revisions to Item 101, we propose to 

include in Item 101(c) the non-exclusive list of disclosure topics discussed below.80  We believe 

that the proposed topics would likely be material to many registrants and, thus, would facilitate 

the disclosure of information material to an investment decision while providing flexibility to 

                                                 
75  See Concept Release, supra note 6. 

76  See letters from Chamber, FedEx, CGCIV, and Fenwick.  

77  See letters from Chamber, FedEx, and CGCIV.   

78  See letter from Fenwick.  

79  Instruction 5 to Item 303(a) (“For example, a discussion of working capital may be appropriate for certain 
manufacturing, industrial or related operations but might be inappropriate for a bank or public utility.”).  

80  We are not proposing to amend the more prescriptive alternative disclosure standards regarding business 
development, description of business, and other information specified under Item 101(h)(1) through (6). We 
believe that this approach will continue to permit smaller reporting companies to provide a less detailed 
description of their business, consistent with the current scaled disclosure requirements for these companies. 



27 
 

tailor disclosure to the specific circumstances of each registrant.  The proposed topics would not 

be line-item requirements, but to the extent that a topic is material to an understanding of a 

registrant’s business, disclosure would be required.81 

Under our proposal, the revised rule would not explicitly reference some of the disclosure 

requirements currently contained in Item 101(c).  In addition to working capital practices, the 

proposed amendments would no longer list the following topics:  disclosure about new segments 

and dollar amount of backlog orders believed to be firm.  Nevertheless, under the proposed 

principles-based approach, registrants still would have to provide disclosure about these topics, 

as well as any other topics regarding the registrants’ business, if they are material to an 

understanding of their business. 

The proposal retains Item 101(c)’s distinction between disclosure topics for which 

segment disclosure should be the primary focus, and those for which the focus should be on the 

registrant’s business taken as a whole.  The proposal clarifies, however, that, for any listed topic, 

disclosure is required only to the extent that it is material to an understanding of the registrant’s 

business taken as a whole. 

Similar to current Item 101(c), most of the listed disclosure topics would fall into the 

category for which segment disclosure would be required to the extent the topic is material to an 

understanding of the registrant’s business taken as a whole.82  We believe that, for the topic 

regarding the material effects of compliance with government regulation, including 

environmental regulation, and the topic regarding human capital resources, the appropriate 

                                                 
81  Similar to Item 101(a), proposed Item 101(c) refers to materiality in the introductory language of paragraphs 

(c)(1) and (2).  While materiality is repeated in some of the listed topics that follow, this is not intended to 
create a second or different analysis regarding materiality for any such topic.    

82   See proposed Item 101(c)(1). 



28 
 

primary focus should be with respect to the registrant’s business taken as a whole.  Similar to the 

current rule, however, if the information elicited regarding these two topics is material to a 

particular segment, the registrant would additionally be required to identify that segment.83 

1. Revenue-generating activities, products and/or services, and any 
dependence on key products, services, product families, or customers, 
including governmental customers 

 
While we recognize that the twelve enumerated items in Item 101(c) may not be relevant 

across all industries or businesses, we continue to believe that disclosure regarding revenue-

generating activities, products and/or services, and any dependence on key products, services, 

product families, or customers, including governmental customers, would generally be material 

to an investment decision.  We agree with the commenter who stated that these elements are key 

to how reasonable investors often evaluate the future prospects of a registrant’s business and that 

highlighting these topics should elicit more informative disclosures.84  As such, we propose to 

retain as a listed disclosure topic information regarding revenue-generating activities, products 

and/or services, and any dependence on key products, services, product families or customers, 

including governmental customers, to the extent this information is material to an understanding 

of the registrant’s business.85   

                                                 
83    See proposed Item 101(c)(2).   

84  See letter from E&Y. 

85  See proposed Item 101(c)(1)(i).  Form S-4 refers to the current version of Item 101(c)(1)(i), which pertained to a 
registrant’s principal products or services, but also refers to Items 101(b) and (d), which pertain, respectively, to 
certain financial information about business segments and geographic areas.  See paragraph (b)(3)(i) of Item 12 
under Part I, Section B of Form S-4.  The Commission recently eliminated Items 101(b) and (d) as business 
disclosure requirements because much of the disclosure was duplicative of disclosure in the registrant’s 
financial statements.  See DUSTR Adopting Release, supra note 62, at 50168-50169.  Because proposed Item 
101(c)(1)(i) would continue to pertain to a registrant’s products or services, we are proposing to retain this Item 
101 provision in Form S-4, but remove Items 101(b) and (d) from that Form to reflect their elimination from 
Regulation S-K.  The same paragraph of Form S-4 also includes descriptions of disclosure items included under 
Items 101(b), (c)(1)(i), or (d).  We are proposing to remove the descriptor that pertains to Item 101(d) (“foreign 
and domestic operations and export sales”), but retain the descriptor “industry segments” since that descriptor 
would continue to apply to Item 101(c)(1)(i).  We are proposing to substitute the descriptor “key products or 



29 
 

2. Status of development efforts for new or enhanced products, trends in 
market demand and competitive conditions 

We continue to believe that disclosure regarding development efforts for new or 

enhanced products, and trends in market demand and competition would generally be material to 

an investment decision.  In response to the Concept Release, several commenters suggested 

additional disclosure related to competitive conditions.  One commenter recommended requiring 

disclosure of the registrant’s competitive landscape, noting that companies not only compete 

within their industry but also with entities external to their industry segment.86  Another 

commenter supported greater disclosure of a registrant’s competitive position and especially the 

market share of its products, competitive landscape and industry trends shaping the nature of 

competition.87  Rather than prescribe additional disclosures for this topic that must be provided in 

all circumstances, we believe that a principles-based approach that allows flexibility for 

registrants to disclose this information to the extent it is material to an understanding of their 

business would better accommodate the variety of competitive conditions that registrants may 

face.88 

3. Resources material to a registrant’s business 
  

Currently two of the twelve disclosure requirements in Item 101(c) relate to registrants’ 

resources: Item 101(c)(1)(iii) requires disclosure of the sources and availability of raw materials, 

and Item 101(c)(1)(iv) requires disclosure of the importance, duration and effect of all patents, 

trademarks, licenses, franchises, and concessions held, each to the extent material to an 

                                                                                                                                                             
services” for “classes of similar products or services” because the proposed amendment to Item 101(c)(1)(i) 
would include the former but would eliminate the latter as a listed disclosure topic under Item 101(c)(1)(i). 

86  See letter from CFA Institute. 

87  See letter from S. Percoco. 

88   See proposed Item 101(c)(1)(ii). 



30 
 

understanding of the registrant’s business taken as a whole.89   

As discussed in greater detail below, we propose modernizing these disclosure 

requirements to refocus registrants’ disclosure on all resources material to their business.  We 

believe that this approach would elicit more informative disclosure tailored to the specific 

circumstances of each company or its industry.  To facilitate application, we propose including 

(a) raw materials, and (b) patents, trademarks, licenses, franchises and concessions held, as 

examples of resources that may be material to a registrant’s business.   

a. Raw materials 
 

Item 101(c)(1)(iii) currently requires disclosure of the sources and availability of raw 

materials.90  In response to the Concept Release’s solicitation of feedback,91 we received several 

comment letters that specifically addressed the requirement to disclose the sources and 

availability of raw materials.92  Two commenters recommended retaining this requirement.93  

One of these commenters specified that the disclosure requirement should be retained with a 

materiality overlay,94 while the other commenter stated that disclosure should only be required if 

raw materials are difficult to obtain.95  One commenter stated that, where material, registrants 

generally discuss the specific sub-items in Item 101(c), including sources and availability of raw 

                                                 
89  17 CFR 229.101(c)(1)(iii) and (iv). 

90  17 CFR 229.101(c)(1)(iii). 

91  See Concept Release, supra note 6. 

92  See letters from Chamber, FedEx, CGCIV, Davis, Fenwick, and NYSSCPA. 

93  See letters from Fenwick and NYSSCPA. 

94  See letter from Fenwick.  

95  See letter from NYSSCPA. 



31 
 

materials, in the business narrative or elsewhere, including MD&A.96   

We propose retaining sources and availability of raw materials as a listed disclosure topic 

in Item 101(c)97 because, while not applicable to all registrants, raw materials are fundamental to 

businesses that depend on them.  Although some registrants include disclosure regarding raw 

materials elsewhere in disclosure documents (such as in MD&A), this disclosure often has a 

different focus.98  Further, our proposal to shift Item 101(c) to a more principles-based approach 

would help clarify that disclosure regarding sources and availability of raw materials by 

registrants is required only when material to their business.  

b. The duration and effect of all patents, trademarks, licenses, 
franchises, and concessions held  

 
Item 101(c)(1)(iv) requires disclosure of the importance, duration, and effect of all 

patents, trademarks, licenses, franchises, and concessions held to the extent material to an 

understanding of the registrant’s business taken as a whole.99  The Concept Release solicited 

input on whether to maintain, expand or revise the current scope of this Item and requested 

comment on the competitive costs of this disclosure.100  It also sought comment on whether to 

limit this disclosure requirement to certain industries.101 

                                                 
96  See letter from Davis. 

97  See proposed Item 101(c)(1)(iii)(A). 

98  For example, a discussion of raw materials in a registrant’s MD&A may focus more narrowly on the effect that 
spending on, or budgeting for, raw materials may have on a registrant’s liquidity and capital resources, whereas 
Item 101(c)(1) attempts to elicit broader disclosure concerning activities involving raw materials, including 
identifying and procuring sources for those raw materials, that may be material to an understanding of the 
registrant’s business as a whole. 

99  17 CFR 229.101(c)(1)(iv).   

100  See Concept Release, supra note 6. 

101  See id. 



32 
 

Numerous commenters supported maintaining the current scope of Item 101(c)(1)(iv),102 

while several commenters opposed expanding this Item based on competitive concerns.103  Item 

101(c)(1)(iv) currently does not refer to disclosure of copyrights or trade secrets and many 

commenters expressed concern that requiring such disclosure would impose substantial costs and 

be unduly burdensome by requiring registrants to systematically identify and catalog such 

intellectual property.104  Further, several commenters suggested that because trade secret 

protection is contingent on the owner taking reasonable measures to keep the information secret, 

any revision to this Item to require disclosure of “intellectual property” would, by definition, 

include trade secrets and endanger these assets.105  In addition, some commenters opposed 

establishing different intellectual property requirements by industry106 and some commenters 

supported maintaining the current materiality threshold for disclosure.107 

Conversely, a number of commenters recommended generally expanding the scope of 

                                                 
102  See letters from 36 Organizations with an Interest in Trade Secret Protection (Aug. 8, 2016) (“36 

Organizations”), Association of American Publishers (July 21, 2016), American Intellectual Property Law 
Association (Aug. 9, 2016) (“American IP Law Association”), Chamber, FedEx, Intellectual Property Owners 
Association (July 15, 2016) (“IP Owners Association”), S. Percoco, NAM, NYSSCPA, the Software 
Association, the Entertainment Software Association and the Software Information Industry Association (July 
21, 2016) (“Software Associations”), Financial Services Roundtable (July 21, 2016), General Motors, and 
Financial Executives International. 

103  See letters from 36 Organizations (focusing only on trade secrets), American IP Law Association; Chamber, 
FedEx, Financial Services Roundtable (focusing only on trade secrets), IP Owners Association, NAM, 
Association of American Publishers (focusing only on copyrights), General Motors, Financial Executives 
International, and Software Associations. 

104  See, e.g., letters from 36 Organizations, American IP Law Association, Chamber, FedEx, IP Owners 
Association, NAM, and Association of American Publishers. 

105  See letters from 36 Organizations, American IP Law Association, Chamber, FedEx, Financial Services 
Roundtable, IP Owners Association, and NAM. 

106  See letters from IP Owners Association, NYSSCPA, Software Associations, and American IP Law Association. 

107  See letters from American IP Law Association, IP Owners Association, NAM, ACC and NYSSCPA. 



33 
 

Item 101(c)(1)(iv).108  In this regard, some commenters stated that a more complete record of a 

public company’s intellectual property is useful to the public, shareholders, researchers, and the 

financial markets generally.109  One of these commenters recommended expanding the 

requirement to include detailed intellectual property information for both material and 

immaterial intellectual property with the caveat that immaterial intellectual property should be 

required only if the information is readily available to report and within the knowledge of the 

company.110  Another commenter, in recommending expansion of this requirement, noted that 

intellectual property assets are a major driver of value in corporations, and asserted that more 

open disclosure would allow shareholders to better assess the value of corporate intellectual 

property assets and monitor directors’ stewardship of these assets.111   

Another commenter recommended including copyrights under this item and requiring 

detailed tabular disclosure by asset type.112  This commenter also opposed establishing different 

disclosure requirements by industry.113   

A broad range of industries directly and indirectly benefit from intellectual property114 

                                                 
108  See letters from Black Stone IP, LLC (May 19, 2016), IIRC, Colleen V. Chien et al. (July 22, 2016) (“IP 

Professors”), Prof. Denoncourt (July 31, 2016), and CFA Institute.  

109  See letters from IP Professors and Prof. Denoncourt. 

110  See letter from IP Professors. 

111  See letter from Prof. Denoncourt.  

112  See letter from CFA Institute. 

113  See id. 

114  See Economics and Statistics Administration and United States Patent and Trademark Office, Intellectual 
Property and the U.S. Economy: Industries in Focus (Mar. 2012) at iv, available at 
http://www.uspto.gov/sites/default/files/news/publications/IP_Report_March_2012.pdf (“Intellectual Property 
Report”).  



34 
 

and intellectual property has become increasingly important to business performance.115  Certain 

industries produce or use significant amounts of intellectual property or rely more heavily on 

these rights.116  Accordingly, some registrants provide detailed disclosure in response to Item 

101(c)(1)(iv), although disclosure varies among registrants and across industries. 

In the biotechnology and pharmaceutical industries, registrants that provide detailed 

patent disclosure often disclose the jurisdiction in which the patent was filed, year of expiration, 

type of patent (e.g., composition of matter, method of use, method of delivery or method of 

manufacturing), products or technologies to which the patent relates and how the patent was 

acquired (e.g., licensed from another entity or owned and filed by the registrant).  Some 

registrants in these industries aggregate patent disclosure by groups of patents, potentially 

making disclosure about individual material patents difficult to discern.  As registrants in the 

biotechnology and pharmaceutical industries regularly sell one or more patented products that 

generate substantial revenue, disclosure of “patent cliffs,”117 which may result in material adverse 

                                                 
115  See, e.g., Kelvin W. Willoughby, What impact does intellectual property have on the business performance of 

technology firms?, Int. J. Intellectual Property Management, Vol. 6, No. 4 (2013).   

116  See Intellectual Property Report, supra note 114.  This report identifies seventy-five industries as “IP-
intensive.”  In this report, patents, trademarks and copyrights were the categories of intellectual property 
assessed.  The methodology for designating each of these subcategories as “IP-intensive” is outlined further in 
this report.  For patent intensive industries, the report utilized the North American Industry Classification 
System (NAICS) codes and identified, as the four most patent-intensive industries, those industries classified in 
computer and electronic product manufacturing (NAICS 334).  This three-digit NAICS industry includes 
computer and peripheral equipment; communications equipment; other computer and electronic products; 
semiconductor and other electronic components; and navigational, measuring, electro-medical, and control 
instruments.   

117  The term “patent cliff” as used in the biotechnology and pharmaceutical industry refers to a future loss of patent 
protection and consequential loss of revenue.  These potential future losses are known to registrants far in 
advance of their onset.  When they occur, they often precipitate material adverse financial effects.  See, e.g., 
Andrew Jack, Pharma tries to avoid falling off ‘patent cliff,’ Financial Times, May 6, 2012 and Cliffhanger, 
Economist, Dec. 3, 2011.  See also Ed Silverman, Big Pharma Faces Some Big Patent Losses, but Pipelines are 
Improving, Wall St. J.: L. Blog, available at http://blogs.wsj.com/pharmalot/2015/02/09/big-pharma-faces-
some-big-patent-losses-but-pipelines-are-improving/.   



35 
 

financial effects, may be required in the risk factors section or MD&A.118 

In the information technologies and services industry, registrants protect their intellectual 

property through the use of patents, trademarks, copyrights, trade secrets, licenses, and 

confidentiality agreements.119  Registrants with large portfolios of intellectual property often 

disclose that their products, services, and technologies are not dependent on any specific patent, 

trademark, copyright, trade secret, or license.  As a result, these registrants often provide only 

high-level discussions of their intellectual property portfolios, which include general statements 

of a registrant’s development, use, and protection of its intellectual property.  Registrants with 

smaller intellectual property portfolios tend to provide slightly more detailed discussions, 

including, for example, disclosure of the total number of issued patents, a range of years during 

which those patents expire and the total number of pending patent applications. 

In general, registrants in the information technologies and services industry use 

copyrights to protect against the unauthorized copying of software programs120 and trade secrets 

to protect proprietary and confidential information that derives its value from continued 

secrecy.121  Since Item 101(c)(1)(iv) does not require disclosure about copyrights or trade secrets, 

registrants currently make disclosure about such matters voluntarily. 

We propose to retain as a listed disclosure topic the importance, duration and effect of 
                                                 
118  See generally  “Interpretation: Commission Guidance Regarding Management's Discussion and Analysis of 

Financial Condition and Results of Operations,” Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 
2003)], available at https://www.sec.gov/rules/interp/33-8350.htm. 

119  See Bruce Abramson, Promoting Innovation in the Software Industry: A First Principles Approach to 
Intellectual Property Reform, 8 B.U. J. Sci. & Tech. L. 75 (2002) (discussing the software industry’s use of 
intellectual property law). 

120  See Dennis S. Karjala, Copyright Protection of Operating Software, Copyright Misuse, and Antitrust, 9 Cornell 
J.L. & Pub. Pol’y 161, 172 (1999) (discussing the dependence of software technology companies on copyright). 

121  See Raymond T. Nimmer & Patricia Ann Krauthaus, Software Copyright: Sliding Scales and Abstracted 
Expression, 32 Hous. L. Rev. 317, 325 (1995) (distinguishing among the software industry’s use of trade secret 
law, patent law and copyright law). 



36 
 

patents, trademarks, licenses, franchises, and concessions held as non-exclusive types of property 

that may be material to a registrant’s business.122  In response to concerns expressed by 

commenters on the Concept Release, however, we are not proposing to expand this topic to 

include copyrights and trade secrets.  In addition to competitive concerns, commenters noted that 

because copyright and trade secret protection is not contingent on registration, a requirement to 

disclose even a subset of these two types of intellectual property would force registrants to 

systematically identify and catalog these types of intellectual property, which could impose 

substantial costs and require significant time.123 

4. A description of any material portion of the business that may be subject 
to renegotiation of profits or termination of contracts or subcontracts at 
the election of the Government 
 

Item 101(c)(1)(ix) requires, to the extent material to an understanding of the registrant’s 

business taken as a whole, disclosure of any material portion of a business that may be subject to 

renegotiation of profits or termination of contracts or subcontracts at the election of the 

Government.124   

Business contracts with agencies of the U.S. government and the various laws and 

regulations relating to procurement and performance of U.S. government contracts impose terms 

and rights that are different from those typically found in commercial contracts.  In a 1972 

Notice to Registrants, the Commission noted that government contracts are subject to 

                                                 
122  See proposed Item 101(c)(1)(iii)(B). 

123  See, e.g., letters from 36 Organizations, American Intellectual Property Law Association (Aug. 9, 2016), U.S. 
Chamber of Commerce (July 20, 2016), FedEx Corporation (July 21, 2016), Intellectual Property Owners 
Association (July 15, 2016), National Association of Manufacturers (July 21, 2016), Association of American 
Publishers (July 21, 2016).  But see also letters from International Integrated Reporting Council (July 20, 2016) 
and CFA Institute (Oct. 6, 2016) (supporting the inclusion of copyrights under Item 101(c)). 

124  17 CFR 229.101(c)(1)(ix). 



37 
 

renegotiation of profit and to termination for the convenience of the government.125  At any 

given time in the performance of a government contract, an estimate of its profitability is often 

subject not only to additional costs to be incurred, but also to the outcome of future negotiations 

or possible claims relating to costs already incurred.126  

Registrants with U.S. government contracts tend to disclose that the funding of these 

contracts is subject to the availability of Congressional appropriations and that, as a result, long-

term government contracts are partially funded initially with additional funds committed only as 

Congress makes further appropriations.  These registrants disclose that they may be required to 

maintain security clearances for facilities and personnel in order to protect classified information.  

Additionally, these registrants state that they may be subject to routine government audits and 

investigations, and any deficiencies or illegal activities identified during the audits or 

investigations may result in the forfeiture or suspension of payments and civil or criminal 

penalties.  We are proposing to retain renegotiation or termination of government contracts as a 

listed disclosure topic127 because we continue to believe that, when material to a business, 

disclosure of this information is important for investors.   

5. The extent to which the business is or may be seasonal 

Item 101(c)(1)(v) requires disclosure of the extent to which the business of the segment is 

or may be seasonal to the extent material to an understanding of the registrant’s business taken as 

a whole.128  The Commission recently considered whether to delete Item 101(c)(1)(v).129  While 

                                                 
125  See Defense and Other Long Term Contracts; Prompt and Accurate Disclosure of Information, Release No. 33-

5263 (June 22, 1972) [37 FR 21464 (Oct. 11, 1972)].  

126  See id. 

127   See proposed Item 101(c)(1)(iv). 

128  17 CFR 229.101(c)(1)(v). 



38 
 

the Commission initially proposed deleting this Item,130 noting that both Regulation S-K131 and 

U.S. GAAP132 require disclosures about seasonality in interim periods,133 the Commission 

ultimately decided to delete Instruction 5 to Item 303(b) of Regulation S-K, which also required 

a discussion of any seasonal aspects that have had a material effect on a registrant’s financial 

condition or results of operations,134 and retain Item 101(c)(1)(v).  The Commission based its 

decision to retain this Item on a concern about the potential loss of information in the fourth 

quarter about the extent to which the business of a registrant or its segment(s) is or may be 

seasonal because U.S. GAAP may not elicit this disclosure.135   

In light of the Commission’s recent evaluation of this disclosure item, we propose 

including as a disclosure topic in Item 101(c) the extent to which the business is or may be 

seasonal.136  

6. Compliance with material government regulations, including 
environmental regulations 

                                                                                                                                                             
129  See Disclosure Update and Simplification Proposed Rule, Release No. 33-10110 (July 13, 2016) [81 FR 51607 

(Aug. 4, 2016)] (“DUSTR Proposing Release”).  Public comments on the DUSTR Proposing Release are 
available at https://www.sec.gov/comments/s7-15-16/s71516.htm.  We refer to these letters throughout as 
“DUSTR” letters.  

130  See DUSTR Proposing Release, supra note 129. 

131  Instruction 5 to Item 303(b) of Regulation S-K [17 CFR 229.303(b)] required a discussion of any seasonal 
aspects of a registrant’s business where the effect is material.   

132  ASC 270-10-45-11.   

133  See DUSTR Proposing Release, supra note 129. 

134   The Commission decided to delete Instruction 5 to Item 303(b) because of its belief that U.S. GAAP in 
combination with the remainder of Item 303 requires disclosures in interim reports that convey reasonably 
similar information to the disclosures required by Instruction 5 to Item 303(b).  See DUSTR Adopting Release, 
supra note 62, at 50169.   

135  See id.  ASC 270-10-45-11 states that entities should consider supplementing interim reports with information 
for 12-month periods ended at the interim date to avoid the possibility that interim results with material seasonal 
variations may be taken as fairly indicative of the estimated results for a full fiscal year.   

136  See proposed Item 101(c)(1)(v). 



39 
 

 
Item 101(c)(1)(xii) requires disclosure of the material effects of compliance with 

environmental laws on the capital expenditures, earnings and competitive position of the 

registrant and its subsidiaries, as well as any material estimated capital expenditures for the 

remainder of the fiscal year, the succeeding fiscal year, and such future periods that the registrant 

deems material.137   

The Concept Release solicited input on whether to increase or reduce the disclosure 

required by this Item and whether this disclosure is important to investors.138  It also sought 

comment on whether to require this disclosure in a different format.139  Some commenters 

supported retaining Item 101(c)(1)(xii).140  A few of these commenters stated that this disclosure 

would increase in importance given trends toward an enhanced regulatory approach to 

environmental protection.141  Several commenters supported retaining the Item but opposed 

expanding it to include additional requirements.142  Other commenters supported expanding this 

Item.143  A few of these commenters supported requiring more detailed disclosure of 

environmental fines, violations, and litigation (e.g., whether these are rare or recurring).144  One 

commenter recommended including this requirement in a broader category of government 

                                                 
137  17 CFR 229.101(c)(1)(xii).   

138  See Concept Release, supra note 6. 

139  See id. 

140  See letters from PRI, the Carbon Tracker Initiative (July 20, 2016), S. Percoco, Chamber, FedEx, CGCIV, 
NIRI, and CFA Institute.  

141  See, e.g., letters from PRI and the Carbon Tracker Initiative. 

142  See letters from Chamber, FedEx, CGCIV, and NIRI. 

143  See letters from CalPERS, DHC Consulting, Impax Asset Management Limited (July 19, 2016) (“Impax”), 
Good Jobs First, Domini Social, and GRI. 

144  See letters from Impax, Domini Social and Good Jobs First. 



40 
 

regulations.145 

Pursuant to the National Environmental Policy Act of 1969 (“NEPA”),146 which 

mandated consideration of the environment in regulatory action, in 1973, the Commission 

adopted a new provision to require disclosure of the material effects that compliance with 

Federal, state and local environmental laws may have on the capital expenditures, earnings, and 

competitive position of the registrant, now designated as Item 101(c)(1)(xii).147  Subsequent 

litigation148 concerning both the denial of a rulemaking petition and adoption of the 1973 

environmental disclosure requirements resulted in the Commission initiating public proceedings 

primarily to elicit comments on whether the provisions of NEPA required further rulemaking.149  

As a result of these proceedings, the Commission in 1976 amended the Item 101 requirements to 

specifically require disclosure of any material estimated capital expenditures for environmental 

control facilities for the remainder of the registrant’s current and succeeding fiscal years, and for 

any further periods that are deemed material.150 

While there is no separate line item requiring disclosure of government regulations that 

may be material to a registrant’s business, it is common practice for many registrants to include 

                                                 
145  See letter from Fenwick. 

146  Pub.L. 91-190, 42 U.S.C. 4321-4347 (Jan. 1, 1970) (“NEPA”).  

147  See Disclosure with Respect to Compliance with Environmental Requirements and Other Matters, Release 33-
5386 (Apr. 20, 1973) [38 FR 12100 (May 9, 1973)] (“Environmental Disclosure Adopting Release”).   

148  See Natural Resources Defense Council, Inc. v. SEC, 389 F. Supp. 689 (D.D.C. 1974); and Natural Resources 
Defense Council, Inc. v. SEC, 606 F.2d 1031 (D.C. Cir. 1979), rev’g 432 F. Supp. 1190 (D.D.C. 1977).  See 
also U.S. Sec. & Exch. Comm’n,, Staff Report on Corporate Accountability 1, 251-259 (Comm. Print 1979) 
(“Staff Report”) (providing a description of this litigation). 

149  See Disclosure of Environmental and Other Socially Significant Matters, Release No. 33-5569 (Feb. 11, 1975) 
[40 FR 7013 (Feb. 18, 1975)]. 

150  See Conclusions and Final Action on Rulemaking Proposals Relating to Environmental Disclosure, Release No. 
33-5704 (May 6, 1976) [41 FR 21632 (May 27, 1976)].  For further discussion of how the Commission has 
sought to consider environmental effects in its business disclosure requirements, see infra Section II.C.2.41 
 

disclosure regarding such information in response to Item 101(c)(1)(xii).  The Concept Release 

sought comment on whether to require registrants to disclose government regulations material to 

their business given that many registrants already voluntarily provide such information.151  In 

addition, it sought input on whether to require disclosure of foreign regulations applicable to the 

operation of the registrant’s business.152  A few commenters supported a specific requirement to 

disclose government regulations153 while one commenter opposed such a requirement, stating 

that it would not provide significant additional information.154  Some commenters supported 

requiring disclosure of foreign regulatory risks.155  Two commenters specified that this 

requirement should be limited to foreign regulations material to the registrant’s business.156  One 

commenter opposed a requirement to discuss foreign regulations that affect a registrant’s 

business and, instead, recommended revising Item 103 to require disclosure of any foreign tax 

audits or actions with negative findings, stating this would be less costly and time consuming 

than a requirement to disclose foreign regulations.157 

Although not required by Item 101(c), many registrants currently discuss government 

regulations relevant to their business, often in the form of a list.  Healthcare and insurance 

providers regularly disclose their collection, use and protection of individually-identifiable 

information and compliance with the Health Insurance Portability and Accountability Act of 

                                                 
151  See Concept Release, supra note 6. 

152  See id. 

153  See letters from Fenwick and S. Percoco.  

154  See letter from NYSSCPA. 

155  See letters from IAC, NYSSCPA, and SIFMA. 

156  See letters from NYSSCPA and SIFMA. 

157  See letter from E. Bean. 



42 
 

1996,158 as well as the impact of the Patient Protection and Affordable Care Act159 on their 

business.  Biotechnology or medical device companies often disclose the status of and process 

for FDA approval of significant new drugs or medical devices.  Public utilities typically discuss 

regulation by various Federal, state, and local authorities and include information about state 

ratemaking procedures, which determine the rates utilities charge and the return on invested 

capital. 

Registrants in the financial services industry regularly describe Federal and state 

regulation as well as supervision by the Federal Reserve Board, while registrants with a material 

amount of U.S. government contracts disclose the laws and regulations for government contracts.  

Registrants with tax strategies involving foreign jurisdictions typically disclose that they are 

subject to income taxes in both the U.S. and numerous foreign jurisdictions, and that future 

changes to U.S. and non-U.S. tax law could adversely affect their anticipated financial position 

and results.  Some registrants disclose the impact of tax treaties between the U.S. and one or 

more foreign jurisdictions on their business.  

Consistent with the current practice of many registrants, as observed by the staff in its 

review of filings, we propose including the material effects of compliance with material 

government regulations, not just environmental laws, as a listed disclosure topic in Item 

101(c).160  This disclosure topic would focus on the material effects that compliance with 

material governmental regulations, both foreign and domestic, may have upon the capital 

                                                 
158  Pub. L. No. 104-191, 110 Stat. 1936 (1996).   

159  Pub. L. No. 111-148, 124 Stat. 119 (2010). 

160  See proposed Item 101(c)(2)(i).  We note that, despite the repetition of materiality within this topic in relation to 
both effects of compliance and government regulations, we do not foresee any circumstances whereby a 
registrant could determine there are material effects from compliance with a government regulation, but that the 
government regulation itself is not material to the registrant’s business taken as a whole.   



43 
 

expenditures, earnings and competitive position of the registrant and its subsidiaries.  We believe 

that this more principles-based approach would help provide investors with the information 

material to an investment decision about a registrant’s compliance with the government 

regulations that materially affect the registrant’s business so that investors may achieve a more 

complete understanding of the registrant’s business.  This approach would also enable each 

registrant to tailor its disclosure regarding its compliance with those governmental regulations 

that are of particular importance to the registrant.  Finally, the proposed approach would codify 

what has become common practice regarding government regulation disclosure. 

While we propose to retain the requirement that a registrant disclose material estimated 

capital expenditures for environmental control facilities for the current fiscal year and any other 

subsequent period that the registrant deems material,161 we are not proposing to require the 

disclosure of additional specific expenditures related to environmental compliance, as some 

commenters have suggested.162  We believe that a more principles-based approach would permit 

a registrant to tailor its disclosure by focusing on the effects of environmental compliance that 

are material to its particular business.  This proposed approach would also benefit investors by 

helping to reduce or eliminate boilerplate or other disclosure concerning the effects of 

environmental compliance that may not be material to an understanding of the business of a 

particular registrant. 

                                                 
161  Current Item 101(c)(i)(xii) requires the disclosure of material estimated capital expenditures for environmental 

control facilities for the remainder of a registrant’s current fiscal year and its succeeding fiscal year as well as 
for such further periods as the registrant may deem material.  In order to simplify the disclosure, and in keeping 
with our more principles-based approach, we are proposing to revise Item 101(c) to require such environmental 
control facilities expenditures disclosure for the registrant’s current fiscal year and any other subsequent period 
deemed material by the registrant.  See proposed Item 101(c)(2)(i). 

162  See, e.g., letters from DHC Consulting, Domini Social, and Impax.  Our proposed approach is consistent with 
the views of several commenters that supported the retention of Item 101(c)’s environmental compliance 
disclosure provision while opposing its expansion.  See supra note 142. 



44 
 

7. Human capital disclosure 

Item 101(c)(1)(xiii) currently requires disclosure of the number of persons employed by 

the registrant.163  The Concept Release solicited input on this disclosure requirement;164 in 

particular, we requested feedback on:   

• Whether this disclosure is important to investors; 

• Whether to require or permit registrants to provide a range of its number of 

employees or independent contractors; 

• Whether disclosure regarding anticipated material changes in the number of 

employees would be useful to investors; and  

• Whether to require registrants to provide disclosure distinguishing among their 

total employees such as by full-time and part-time or seasonal employees; 

employees and independent contractors; or domestic or foreign employees.165  

Many commenters recommended retaining and expanding the requirement to disclose the 

number of persons employed by the registrant,166 with some asserting that disclosure of the exact 

                                                 
163  17 CFR 229.101(c)(1)(xiii). 

164  In addition, there has been congressional interest in the topic of modernizing human capital disclosures by 
registrants.  See, e.g., letter from Sen. Mark R. Warner (July 19, 2018) (“Sen. Warner”). 

165  See Concept Release, supra note 6. 

166  See letters from RGA, E. Bean (July 6, 2016), CII, Railpen, NYSC, Interfaith Center on Corporate 
Responsibility (July 14, 2016) (“ICCR”), US SIF Foundation (July 14, 2016) (“US SIF”), Dana Investment 
Advisors (July 15, 2016) (“Dana Investment”), Douglas Hileman Consulting LLC (July 15, 2016) (“DHC 
Consulting”), Sisters of Charity of Saint Elizabeth (July 18, 2016) (“Sisters of Charity”), Christian Church 
Foundation (July 18, 2016) (“CCF”), Park Foundation (July 19, 2016) (“Park”), OIP Trust (July 19, 2016) 
(“OIP”), Priests of the Sacred Heart (July 20, 2016) (“Sacred Heart”), Sister Schools of St. Francis (July 20, 
2016) (“S.S. St. Francis”), Friends Fiduciary Corporation (July 20, 2016) (“Friends”), LGIM, Everence 
Financial and the Praxis Mutual Funds (July 20, 2016) (“Everence”), Sister Schools of Notre Dame (July 21, 
2016) (“SSND”), Provincial of the School Sisters of St. Francis of St. Joseph Convent (July 20, 2016) (“SSSF-
Wisconsin”), As You Sow (July 21, 2016), CAQ, GRI (July 21, 2016), Domini Social, E&Y, CalSTRS, Hermes 
Investment Management (July 21, 2016), NYC Comptroller, Good Jobs First (July 21, 2016), Maryland Bar 
Securities Committee, Tri-State Coalition for Responsible Investment (July 21, 2016) (“TSCRI”), Addenda 
Capital (July 21, 2016), AFSCME, AFL-CIO, Bloomberg (July 21, 2016), Oxfam America (July 21, 2016), 



45 
 

number of employees would help investors understand the risks of potential material labor and 

human rights violations and that, for contractors or subcontractors, disclosing a range of these 

workers would be acceptable if sufficiently narrow and accompanied by disclosure explaining 

why the exact number is unavailable.167  Conversely, a number of commenters questioned the 

utility of requiring registrants to disclose the number of persons employed by the registrant.168  

Several of these commenters opposed expanding the requirement,169 while another commenter 

stated that this disclosure is typically immaterial and any change in the number of employees that 

materially affects the registrant’s results of operations would be disclosed in MD&A.170    

        With respect to whether anticipated material changes in the number of employees would 

be useful to investors, several commenters supported disclosure of employee turnover.171  

Numerous commenters further recommended requiring registrants to distinguish among their 

total employees.172  Most of these commenters recommended requiring this disclosure for both 

registrants and their suppliers, and specified inclusion of migrant, contract, or temporary 

                                                                                                                                                             
Presbyterian Church U.S.A. (July 21, 2016) (“PC USA”), Allstate, Cornerstone, Christian Brothers Investment 
Services (July 21, 2016) (“CBIS”), S. Percoco, Responsible Sourcing Network (July 21, 2016) and CalPERS.  

167  See letters from US SIF and US SIF Foundation (July 14, 2016) (“US SIF”), ICCR, Dana Investment, Sisters of 
Charity, CCF, Park, OIP, Sacred Heart, S.S. St. Francis, Friends, Everence, SSND, SSSF-Wisconsin, As You 
Sow, TSCRI, PC USA and CBIS. 

168  See letters from Chamber, FedEx, CGCIV, and Fenwick. 

169  See letters from Chamber, FedEx, and CGCIV. 

170  See letter from Fenwick.  Another commenter stated that this information is immaterial, does not provide 
information about the size or scope of the business, and does not provide any clarity to the overall strategy of 
the company.  See letter from United Health.   Further, one commenter asserted that disclosures that comply 
with the current prescriptive requirement may not provide investors with the most appropriate information.     

171  See letters from DHC Consulting, LGIM, Railpen, CalPERS, AFL-CIO, NYC Comptroller, AFSCME, CAQ, 
Domini Social, E&Y, Hermes Investment Management, and Cornerstone. 

172  See letters from ICCR, Dana Investment, DHC Consulting, Sisters of Charity, CCF, Park, OIP, Sacred Heart, 
S.S. St. Francis, Friends, Everence, SSND, SSSF-Wisconsin, As You Sow, TSCRI, PC USA, CBIS, GRI, US 
SIF, Railpen, CalPERS, AFL-CIO, CAQ, Domini Social, CalSTRS, Good Jobs First, Maryland Bar Securities 
Committee, Bloomberg, and NYC Comptroller. 



46 
 

workers.173    

The Concept Release also solicited feedback on additional line-item disclosure 

requirements about a registrant’s business that would improve the quality and consistency of 

disclosure, and specifically sought input on whether to require additional information about a 

registrant’s employees or employment practices.174  A number of commenters advocated for 

greater human capital disclosure,175 with a variety of commenters recommending various specific 

disclosure topics, including: 

• Worker recruitment, employment practices, and hiring practices;176   

• Employee benefits and grievance mechanisms;177   

• ”Employee engagement” or investment in employee training;178   

• Workplace health and safety;179   

• Strategies and goals related to human capital management and legal or regulatory 

                                                 
173  See letters from ICCR, Dana Investment, DHC Consulting, Sisters of Charity, CCF, Park, OIP, Sacred Heart, 

S.S. St. Francis, Friends, Everence, SSND, SSSF-Wisconsin, As You Sow, TSCRI, PC USA, CBIS, GRI, and 
Good Jobs First. 

174  See Concept Release, supra note 6. 

175  See, e.g., letters from M. Ferguson (July 7, 2016), Norges Bank Investment Management (July 15, 2016), P. 
Linzmeyer (July 19, 2016), LGIM, Railpen, Hermes Investment Management, NYC Comptroller, Addenda 
Capital, AFSCME, Working IDEAL (July 21, 2016), AFL-CIO, National Partnership for Women & Families 
(Aug. 8, 2016), and Rockefeller & Co., Inc. (July 21, 2016), and Sen. Warner.   

176  See letters from ICCR, Dana Investment, Sisters of Charity, CCF, Park, OIP, Sacred Heart, S.S. St. Francis, 
Friends, Everence, SSND, SSSF-Wisconsin, As You Sow, TSCRI, CalPERS, PC USA, CBIS, and Domini 
Social. 

177  See letters from ICCR, Dana Investment, Sisters of Charity, CCF, Park, OIP, Sacred Heart, S.S. St. Francis, 
Friends, Everence, SSND, SSSF-Wisconsin, As You Sow, TSCRI, PC USA, and CBIS. 

178  See letters from LGIM, Railpen, CalPERS, AFL-CIO, NYC Comptroller, AFSCME, Addenda Capital and 
Hermes Investment Management.  See also letter from Joseph V. Carcello, Chair, Investor as Owner 
Subcommittee, on behalf of Subcommittee members, of the SEC’s Investor Advisory Committee (November 
22, 2016) (in response to FAST Act – SEC Required Study on Modernization and Simplification of Regulation 
S-K).  

179  See letters from LGIM, Railpen, CalPERS, NYC Comptroller, AFSCME, AFL-CIO, and US SIF. 



47 
 

proceedings related to employee management;180    

• Whether employees are covered by collective bargaining agreements;181 and   

• Employee compensation or incentive structures.182 

We also received a rulemaking petition requesting that the Commission adopt new rules, 

or amend existing rules, to require registrants to disclose information about their human capital 

management policies, practices and performance (the “Human Capital Rulemaking Petition”).183  

Many of the comment letters received in support of the Human Capital Rulemaking Petition 

asserted the importance of human capital management in assessing the potential value and 

performance of a company over the long term.184  Further, a number of commenters asserted that 

companies with poor management of human capital may face operational, legal, and reputational 

risks while, in contrast, companies with strong human capital management may develop a 

competitive advantage.185  While the Human Capital Rulemaking Petition did not include specific 

recommendations for disclosure requirements related to human capital management, it included 

                                                 
180  See letters from AFL-CIO and Domini Social. 

181  See letter from Good Jobs First. 

182  See letters from NYC Comptroller, AFL-CIO, CalPERS, and Domini Social. 

183  See Rulemaking petition to require registrants to disclose information about their human capital management 
policies, practices and performance, File No. 4-711 (July 6, 2017), available at 
https://www.sec.gov/rules/petitions/2017/petn4-711.pdf and related comments available at 
https://www.sec.gov/comments/4-711/4-711.htm.  We refer to these letters throughout as “Human Capital 
Rulemaking Petition” letters. 

184  See, e.g., letters from British Columbia Municipal Pension Board of Trustees (Sept. 29, 2017) [Human Capital 
Rulemaking Petition letter], CalPERS and CalSTRS (July 10, 2017) (“CalPERS and CalSTRS 1”)[Human 
Capital Rulemaking Petition letter], Center for Safety and Health Sustainability (June 15, 2018) (“Center for 
Safety”) [Human Capital Rulemaking Petition letter], David F. Larcker (Dec. 15, 2017) [Human Capital 
Rulemaking Petition letter], League of Allies (Apr. 25, 2018) [Human Capital Rulemaking Petition letter], and 
AFL-CIO (Sept. 22, 2017) [Human Capital Rulemaking Petition letter]. 

185  See letters from Australian Council of Superannuation Investors (Nov. 20, 2017) [Human Capital Rulemaking 
Petition letter], British Columbia Municipal Pension Board of Trustees, CalPERS and CalSTRS 1, and Center 
for Safety.   



48 
 

categories of information that it characterized as fundamental to furthering investors’ 

understanding of how well a company is managing its human capital.186 

Item 101(c)(1)(xiii) dates back to a time when companies relied significantly on plant, 

property, and equipment to drive value.  At that time, a prescriptive requirement to disclose the 

number of employees may have been an effective means to elicit information material to an 

investment decision.  Today, intangible assets represent an essential resource for many 

companies.187  Because human capital may represent an important resource and driver of 

performance for certain companies,  and as part of our efforts to modernize disclosure, we 

propose to amend Item 101(c) to refocus registrants’ human capital resources disclosures.188  

Specifically, we propose replacing the current requirement to disclose the number of employees 

with a requirement to disclose a description of the registrant’s human capital resources, including 

in such description any human capital measures or objectives that management focuses on in 

managing the business, to the extent such disclosures would be material to an understanding of 

the registrant’s business.  We recognize that the exact measures or objectives included in a 

registrant’s human capital resource disclosure may change over time and may depend on the 

industry.  The proposed amendment provides non-exclusive examples of human capital measures 

and objectives that may be material, depending on the nature of the registrant’s business and 

workforce, such as measures or objectives that address the attraction, development, and retention 

of personnel.   

                                                 
186  See Human Capital Rulemaking Petition, supra note 183 (suggesting that the key categories of information are: 

workforce demographics; workforce stability; workforce composition; workforce skills and capabilities; 
workforce culture and empowerment; workforce health and safety; workforce productivity; human rights 
commitments and their implementation; workforce compensation and incentives). 

187  See infra note 279. 

188  See proposed Item 101(c)(2)(ii). 



49 
 

In assessing the best way to approach disclosure regarding human capital, we were 

mindful that each industry, and even each company within a specific industry, has its own human 

capital considerations, and that those considerations may evolve over time.  In light of this fact, 

and with the principle of materiality in mind, it is our view that prescribing fixed, specific line 

item disclosures in this area for all registrants would not result in the most meaningful 

disclosure.189  Instead, we believe that investors would be better served by understanding how 

each company looks at its human capital and, in particular, where management focuses its 

attention in this space.  The intent of the proposed requirement is to elicit, to the extent material 

to an understanding of the registrant’s business, disclosures regarding human capital that allow 

investors to better understand and evaluate this company resource and to see through the eyes of 

management how this resource is managed. 

Request for Comment 

12. Should we shift to a more principles-based approach for Item 101(c), as proposed?  

Would registrants find it difficult to apply the principles-based requirements?     

13. Would the proposed principles-based requirements elicit information that is material 

to an investment decision?  If not, how might Item 101(c) be further improved?  Are 

there any additional disclosure topics that we should include in Item 101(c) to 

facilitate disclosure?  Alternatively, should we exclude any of our proposed 

disclosure topics?   

                                                 
189  The Investor Advisory Committee recently recommended that the SEC take measures to improve the disclosure 

of a registrant’s human capital management, and suggested that “any requirements should be crafted so as to 
reflect the varied circumstances of different businesses, and to eschew simple ‘one-size-fits-all’ approaches that 
obscure more than they add.”  Recommendation of the Investor Advisory Committee Human Capital 
Management Disclosure  (March 28, 2019), available at https://www.sec.gov/spotlight/investor-advisory-
committee-2012/human-capital-disclosure-recommendation.pdf. 



50 
 

14. Should we instead require disclosure of any or all of the topics addressed in our 

proposed examples?  If so, which topics?  Should we require other types of business 

information?  If so, what information?  

15. Should we retain Item 101(c)’s distinction between disclosure topics for which 

segment disclosure should be the primary focus, and those for which the focus should 

be on the registrant’s business taken as a whole, as proposed?  If so, is our allocation 

of the listed disclosure topics into the two categories appropriate? 

16. We are proposing to amend Item 101(c) to include as a listed disclosure topic the 

status of development efforts for new or enhanced products, trends in market demand 

and competitive conditions.  Would the disclosure elicited in response to this 

amendment overlap with the disclosure provided in response to our proposed 

amendment to Item 101(a) to include material changes to business strategy as a 

disclosure topic?  If so, should business strategy changes be included as a listed 

disclosure topic in Item 101(c) instead of Item 101(a)? 

17. Currently, the duration and effect of copyright and trade secret protection is not 

included within the scope of Item 101(c) disclosure.  Should we include it as a listed 

disclosure topic that could be provided?   

18. Is backlog typically discussed in MD&A or is it better suited for disclosure under 

Item 101(c) to the extent material?  Similarly, is working capital typically sufficiently 

disclosed in MD&A or is it better addressed under Item 101(c)? 

19. Should the extent to which the business is or may be seasonal be included as a listed 

disclosure topic, as proposed?  Alternatively, should we require this disclosure in all 

circumstances?  We note that fourth quarter disclosure about the extent to which the 



51 
 

business of a registrant or its segment(s) is or may be seasonal may not be elicited by 

U.S. GAAP.  We further note that there is no longer a separate seasonality instruction 

to MD&A.  Do these considerations support the continued inclusion of seasonal 

aspects of a registrant’s business, to the extent material to the understanding of a 

registrant’s business, as a listed disclosure topic? 

20. Should we include as a listed disclosure topic the material effects of compliance with 

material government regulations, as proposed, or should we focus more narrowly on 

compliance with environmental regulations, as currently required under Item 101(c)?  

Would the proposed more principles-based approach to governmental regulatory 

compliance disclosure elicit the appropriate level of disclosure about environmental 

and foreign regulatory risks?  If not, are there more specific disclosures that we 

should require?  Should we continue to include material estimated capital 

expenditures for environmental control facilities as a disclosure topic under Item 

101(c)? 

21. Should disclosure regarding human capital resources, including any material human 

capital measures or objectives that management focuses on in managing the business, 

be included under Item 101(c) as a listed disclosure topic, as proposed?  Should we 

define human capital?  If so, how? 

22. With respect to human capital resource disclosure, should we provide non-exclusive  

examples of the types of measures or objectives that management may focus on in 

managing the business, such as, depending on the nature of the registrant’s business 

and workforce, measures or objectives that address the attraction, development, and 

retention of personnel, as proposed?  Would providing specific examples potentially 



52 
 

result in disclosure that is immaterial and not tailored to a registrant’s specific 

business?  Would not including such examples result in a failure to elicit information 

that is material and in some cases comparable across different issuers?   

23. With respect to human capital resource disclosure, should we include other non-

exclusive examples of measures or objectives that may be material, such as the 

number and types of employees, including the number of full-time, part-time, 

seasonal and temporary workers, to the extent disclosure of such information would 

be material to an understanding of the registrant’s business?  Could other examples 

include, depending on the nature of the registrant’s business and workforce:  

measures with respect to the stability of the workforce, such as voluntary and 

involuntary turnover rates; measures regarding average hours of training per 

employee per year; information regarding human capital trends, such as competitive 

conditions and internal rates of hiring and promotion; measures regarding worker 

productivity; and the progress that management has made with respect to any 

objectives it has set regarding its human capital resources?  Would providing specific 

examples potentially result in disclosure that is immaterial and not tailored to a 

registrant’s specific business?  Would not including such examples result in a failure 

to elicit information that is material and in some cases comparable across different 

issuers?   

24. Should we retain an explicit requirement for registrants to disclose the number of 

their employees?  Alternatively, should we permit registrants to disclose a range of 

the number of its employees and/or a range for certain types of employees?   



53 
 

25. Foreign private issuers that file registration statements on Forms F-1, F-3, and F-4 are 

not subject to Item 101 and instead must meet the business disclosure requirements of 

Form 20-F.  Should we amend Form 20-F to require the disclosure of human capital 

resources, including any human capital measures or objectives that management 

focuses on in managing the business, to the extent material to an understanding of the 

registrant’s business?  Would such disclosure present a significant challenge to 

foreign private issuers to the extent that it is not required in other jurisdictions?  Are 

there other proposed Item 101 disclosure topics that we should require in Form 20-F? 

26. The Commission revised Form 20-F in 1999 to conform in large part to the 

international disclosure standards endorsed by the International Organization of 

Securities Commissions (“IOSCO”) for the non-financial statement portions of a 

disclosure document, which have served as the basis for the disclosure requirements 

in several foreign jurisdictions.190  One of the objectives of the IOSCO standards was 

to facilitate the cross-border flow of securities and capital by promoting the use of a 

single disclosure document that would be accepted in multiple jurisdictions.191  If we 

revise Form 20-F to include any of the proposed Item 101 amendments, would such 

revision reduce the ability of foreign private issuers to use a single document in 

multiple jurisdictions? 

27. The disclosure requirements regarding a foreign private issuer’s business under Form 

20-F are largely prescriptive.  Would amending Form 20-F to make the business 

disclosure more principles-based represent a more significant change, or impose a 

                                                 
190    See International Disclosure Standards, Release No. 33-7745 (September 28, 1999) [64 FR 53900 (Oct. 5, 

1999)]. 

191    See id. at 53901. 



54 
 

greater challenge, for foreign private issuer registrants than the proposed Item 101 

amendments would for domestic registrants?  Would the benefits of making Form 20-

F more principles-based nevertheless justify such an amendment? 

28.  Much of the disclosure required under Item 101(h) for smaller reporting companies 

is prescriptive.  Should we retain this prescriptive approach or adopt a more 

principles-based approach, similar to the proposed amendments to Items 101(a) and 

(c), under Item 101(h)?  Would smaller reporting companies find it difficult to apply 

a principles-based approach?  Should we consider changes to any of the listed 

disclosure items in Item 101(h)(1) through (6)? 

29. We are proposing to amend Form S-4 to conform it to changes made to Item 101 

pursuant to the DUSTR Adopting Release as well as to the proposed revisions to Item 

101(c) discussed above.192  Are the proposed revisions to Form S-4 appropriate? 

C. Legal Proceedings (Item 103) 

Item 103 requires disclosure of any material pending legal proceedings, other than 

ordinary routine litigation incidental to the business, to which the registrant or any of its 

subsidiaries is a party or of which any of their property is the subject.193  Item 103 also requires 

disclosure of the name of the court or agency in which the proceedings are pending, the date 

instituted, the principal parties thereto and a description of the factual basis alleged to underlie 

the proceeding and the relief sought.194  Similar information is to be included for such 

proceedings known to be contemplated by governmental authorities.195 

                                                 
192  See supra note 85. 

193  17 CFR 229.103. 

194  See id. 

195  See id. 



55 
 

The Commission first adopted a requirement to disclose all pending litigation that may 

materially affect the value of the security to be offered, describing the origin, nature and name of 

parties to the litigation, as part of Form A-1 in 1933.196  In 1935, the Commission included in 

Form A-2 a requirement for a brief description of material, pending legal proceedings and 

proceedings by governmental authorities, where such proceedings depart from the ordinary 

routine litigation incidental to the kind of business conducted by the registrant or its 

subsidiaries.197  The requirement was later expanded in Form S-1198 to include: (1) a requirement 

to identify the court or agency, the date instituted, and the names of the principal parties; (2) a 

requirement that material bankruptcy proceedings involving the registrant or its significant 

subsidiaries be described and any material proceeding involving a director, officer, affiliate, or 

principal security holder; and (3) an exemption for disclosure of proceedings involving claims of 

less than 15 percent of the registrant’s consolidated current assets.199   

As discussed in greater detail below, in connection with NEPA,200 the legal proceedings 

disclosure requirement was expanded to require additional disclosure about environmental 

matters.201  At the same time a requirement to disclose the factual basis of proceedings and the 

nature of relief sought was added, and the disclosure threshold was reduced from 15 percent to 

                                                 
196  See Form A-1, Item 17, adopted in Release No. 33-5 (July 6, 1933) [not published in the Federal Register].   

197  See Form A-2, Item 40, adopted in Release No. 33-276 (Jan. 14, 1935) [not published in the Federal Register].   

198  17 CFR 239.11. 

199  See Application for Registration of Securities, Release No. 33-3584 (Oct. 21, 1955) [20 FR 8284].  See also 
Forms for Registration Statements; Notice of Proposed Rulemaking, Release No. 33-3540 (Apr. 26, 1955) [20 
FR 2965].   

200  See NEPA, supra note 146. 

201  See Environmental Disclosure Adopting Release, supra note 147. 



56 
 

10 percent.202  In 1978, the requirement was also moved from the forms to Item 5 of Regulation 

S-K.203   

In the DUSTR Proposing Release, the Commission solicited comments about whether to 

retain, modify, eliminate, or refer the Item 103 disclosure requirements to the Financial 

Accounting Standards Board (“FASB”) for potential incorporation into U.S. GAAP.204  Many 

commenters opposed the integration of Item 103 into U.S. GAAP.205  A number of commenters206 

stated that the objectives of Item 103 and U.S. GAAP differ,207 and some of these commenters208 

indicated that a better articulation of objectives may be warranted.  Commenters further 

expressed concern that the integration could lead to increased disclosure of immaterial items and 

may eliminate the safe-harbor protections currently afforded to forward-looking statements 

related to legal proceedings under Regulation S-K.209 

Some commenters recommended the deletion of Item 103 altogether or, at a minimum, 

                                                 
202  See id. 

203  See Integrated Reporting Requirements: Directors and Officers, Management Remuneration, Legal 
Proceedings, Principal Security Holders and Security Holdings of Management, Release No. 33-5949 (July 28, 
1978) [43 FR 34402]. 

204  See DUSTR Proposing Release, supra note 129 at 51633. 

205  See, e.g., letters from Center for Audit Quality (Oct. 3, 2016) (“CAQ 1”) [DUSTR letter], Corporate 
Governance Coalition for Investor Value (Oct. 27, 2016) (“CGCIV 1”) [DUSTR letter], Davis Polk & 
Wardwell LLP (Nov. 2, 2016) (“Davis 1”) [DUSTR letter], FedEx Corporation (Nov. 2, 2016) (“FedEx 1”) 
[DUSTR letter], Shearman & Sterling LLP (Dec. 1, 2016) (“Shearman 1”) [DUSTR letter], and U.S. Chamber 
of Commerce (Oct. 27, 2016) (“Chamber 1”) [DUSTR letter]. 

206  See, e.g., letters from CAQ 1 and NAREIT (Oct. 28, 2016) (“NAREIT 1”) [DUSTR letter].   

207  Item 103 is intended to provide a description of material pending legal proceedings, while U.S. GAAP is 
designed to provide information consistent with the accounting model for loss contingencies.   

208  See, e.g., letters from CAQ 1 and Davis 1.   

209  See letters from CGCIV 1, Davis 1, FedEx 1, NAREIT 1, Shearman 1, and Chamber 1.   



57 
 

some of the disclosure requirements contained therein.210  For example, one of these commenters 

asserted that U.S. GAAP, together with Items 303 and the former 503(c) (now Item 105) of 

Regulation S-K, elicits the appropriate level of disclosure of material legal proceedings to inform 

investment and voting decisions of a reasonable investor.211   

In response to concerns expressed by commenters, the Commission decided to retain the 

disclosure requirements in Item 103 without amendment and without referral to the FASB for 

potential incorporation into U.S. GAAP, indicating that further consideration was warranted with 

respect to the implications of potential changes to these requirements.212 

In light of the concerns expressed by commenters in response to the DUSTR Proposing 

Release, and after further consideration of how to improve the disclosure requirements in Item 

103, we are proposing the following amendments.213 

1. Expressly provide for the use of hyperlinks or cross-references to 
avoid repetitive disclosure  

Although Item 103 of Regulation S-K and U.S. GAAP differ in certain respects, they also 

have overlapping disclosure requirements.214  Thus, in order to comply with Item 103, registrants 

commonly repeat some or all of the disclosures that are provided elsewhere in the document, 

such as, for example, in the notes to the financial statements under U.S. GAAP, the MD&A, and 

the Risk Factors sections. 

                                                 
210  See letters from Davis 1, Edison Electric Institute and American Gas Association Accounting Advisory Council 

(Nov. 2, 2016) (“EEI and AGA 1”) [DUSTR letter] and Grant Thornton LLP (Nov. 1, 2016) [DUSTR letter].   

211  See letter from Davis 1.   

212  See DUSTR Adopting Release, supra note 62. 

213  In addition to the proposed amendments discussed below, we also are proposing to reorganize Item 103 to 
incorporate the contents of the current instructions into the text of Item 103 and to eliminate the instructions. 

214  See supra note 207 and infra note 235.  



58 
 

In an effort to encourage registrants to avoid duplicative disclosure, we propose to revise 

Item 103 to expressly state that some or all of the required information may be provided by 

including hyperlinks or cross-references to legal proceedings disclosure located elsewhere in the 

document. 

2. Update the disclosure threshold for environmental proceedings in 
which the government is a party  

 
Instruction 5.C. to Item 103 specifically requires disclosure of any proceeding under 

environmental laws to which a governmental authority is a party unless the registrant reasonably 

believes it will not result in sanctions of $100,000 or more; provided, however, that such 

proceedings which are similar in nature may be grouped and described generally.215 

Pursuant to NEPA, Congress required all Federal agencies to include consideration of the 

environment in regulatory action.216  The Commission’s initial action in the environmental area 

came in 1971 when an interpretive release was issued alerting registrants to the potential 

disclosure obligations that could arise from material environmental litigation and the material 

effects of compliance with environmental laws.217  After an assessment of the disclosure elicited 

under this release, the Commission determined that more specific disclosure standards were 

necessary and the Commission adopted amendments to certain registration and reporting forms 

                                                 
215  17 CFR 229.103. 

216  See NEPA, supra note 146.   

217  See Disclosures Pertaining to Matters Involving the Environment and Civil Rights, Release No. 33-5170 (July 
19, 1971) [36 FR 13989 (July 29, 1971)] (“The Commission’s requirements for describing a registrant’s 
business on the forms and rules under the Securities and Exchange Act call for disclosure, if material, when 
compliance with statutory requirements…may materially affect the earning power of the business, or cause 
material changes in registrant’s business done or intended to be done.  Further, the Commission’s disclosure 
requirements relating to legal proceedings call for disclosure, where material, of proceedings arising…under 
statutes, Federal, state or local, regulating the discharge of materials into the environment, or otherwise 
specifically relating to the protection of the environment….”). 



59 
 

in 1973.218  The amendments required disclosure of (1) the material effects that compliance with 

Federal, state, and local environmental laws may have on the capital expenditures, earnings and 

competitive position of the registrant, and (2) any material pending or contemplated 

administrative or judicial proceedings involving Federal, state or local environmental laws, as 

well as any environmental proceeding by a governmental authority.219  While these amendments 

called for disclosure of all environmental proceedings involving governmental authorities, the 

Commission recognized that a complete description of each such proceeding might cause 

disclosure documents to be excessively detailed without a commensurate benefit to investors.220  

Therefore, the Commission also adopted at that time a provision which allowed registrants to 

group similar governmental proceedings and to describe them generally.221 

As noted earlier, 222 in 1975 the Commission initiated public proceedings223 to elicit 

comments on whether further rulemaking in the environmental area was appropriate.  The 

Commission solicited comments on a number of issues affecting environmental disclosure, such 

as the relevance of those disclosures to informed voting decisions.224  The request for comments 

resulted in certain staff recommendations, as set forth in the 1979 Staff Report on Corporate 

                                                 
218  See Environmental Disclosure Adopting Release, supra note 147. 

219  See id. 

220  See id. 

221  See id. 

222  See supra notes 148 and 149 and accompanying text. 

223  See  Release No. 33-5569 (Feb. 11, 1975) [40 FR 7013 (Feb. 18, 1975)].  As previously noted, as a result of 
these proceedings, the Commission amended its forms in 1976 to specifically require disclosure of any material 
estimated capital expenditures for environmental control facilities for the remainder of the registrant’s current 
fiscal year and its succeeding fiscal year, and for any further periods that are deemed material.  See Release No. 
33-5704, supra note 150. 

224   See  Release No. 33-5569, supra note 223, at 7015.   



60 
 

Accountability, concerning the Commission’s environmental disclosure provisions.225  The Staff 

Report concluded that disclosure of all environmental proceedings to which a governmental 

authority is a party resulted in lengthy disclosures which obscured more significant 

environmental proceedings.226  The Staff Report stated that “more focused disclosure could be 

more beneficial to investors and shareholders” and recommended that the disclosure requirement 

be amended to allow for a materiality threshold, instead of requiring disclosure of all such 

proceedings.227   

Consistent with the Staff Report,228 the Commission added environmental disclosure 

thresholds (including Instruction 5.C.) to current Item 103 in 1982.229  The 1982 amendments 

included new subparts A, B, and C to Instruction 5 of Item 103, with subpart C permitting 

registrants not to disclose environmental proceedings to which the government is a party if the 

registrant reasonably believes that monetary sanctions resulting from the proceedings will be less 

than $100,000.230  The 1981 proposing release for these amendments indicated that the $100,000 

threshold was based in part on actual fines assessed in environmental proceedings at the time.231  

In that release, the Commission stated its belief that disclosure of fines by governmental 

authorities may be of particular importance in assessing a registrant’s environmental compliance 

problems, and that a disclosure threshold based on governmental fines may be more indicative of 

                                                 
225  See Staff Report, supra note148, at 250-86. 

226  See id. 

227  See id. 

228  See id. 

229  See 1982 Integrated Disclosure Adopting Release, supra note 9. 

230  See id. 

231  See Proposed Amendments to Item 5 of Regulation S-K Regarding Disclosure of Certain Environmental 
Proceedings, Release No. 33-6315 (May 5, 1981) [46 FR 25638 (May 8, 1981)].61 
 

possible illegality and conduct contrary to public policy than other measures.232 

Since the current requirements in Instruction 5.C. to Item 103 were adopted in 1982, the 

Commission has explored ways in which environmental disclosures could be improved for 

investors while not unduly burdening registrants.  For example, the 1996 Report of the Task 

Force on Disclosure Simplification recommended replacing the $100,000 threshold with a 

general materiality standard or, alternatively, recommended raising the dollar threshold that 

triggers disclosure.233  The Task Force made this recommendation noting that in some 

circumstances the “one size fits all” approach may result in the disclosure of  information about 

environmental proceedings not material to an investment decision.234  However, the 

recommended changes were not proposed. 

Although the DUSTR Proposing Release did not specifically seek comment on the 

bright-line $100,000 threshold in Instruction 5.C. to Item 103,235 some commenters expressed 

opposition to the elimination of any bright-line thresholds in Commission disclosure 

requirements because the thresholds establish a baseline of disclosure for all registrants in certain 

                                                 
232  See id.  

233  See Report of the Task Force on Disclosure Simplification (Mar. 5, 1996), available at 
https://www.sec.gov/news/studies/smpl.htm.  

234  See id. 

235  The DUSTR Proposing Release more generally discussed the overlap in disclosure that could result from 
compliance with the requirements under Item 103 and U.S. GAAP, which requires the disclosure of loss 
contingencies (see ASC 450-20), and noted the differences between the two sets of requirements.  See DUSTR 
Proposing Release, supra note 129, at 51633-51634.  Following a discussion of those differences, the 
Commission solicited comment on whether inclusion of the Item 103 disclosures in the audited financial 
statements would create significant burdens for issuers and auditors.  See DUSTR Proposing Release, supra 
note 129 at 51635.  Because of the concerns expressed by the many commenters that opposed the integration of 
Item 103 into U.S. GAAP, the Commission did not amend the Item 103 disclosure requirements.  See DUSTR 
Adopting Release, supra note 62, at 50174. 



62 
 

areas.236  These commenters expressed concern about using a materiality standard for disclosure 

because it may reduce the information made available to investors or diminish comparability of 

registrants.237   

Other commenters supported eliminating the bright-line thresholds and generally 

supported a more principles-based disclosure framework.238  These commenters also asserted that 

materiality is a better disclosure standard because certain of the existing bright-line thresholds 

result in disclosure that may not be material to investors, may obscure material information and 

may be costly to provide.239 

We continue to believe that a disclosure threshold based on the imposition of a 

governmental fine is appropriate because such a fine may be important for investors in assessing 

a registrant’s environmental compliance.240  A disclosure threshold based on imposition of a 

governmental fine also provides a useful benchmark for registrants when determining whether a 

particular environmental proceeding, which can be factually and legally complex, should be 

disclosed.  Such a disclosure threshold also promotes comparability among registrants in the 

disclosure of environmental proceedings.  For these reasons, we propose to retain a disclosure 

threshold for environmental proceedings based on the imposition of a governmental fine. 

However, as the $100,000 disclosure threshold for environmental proceedings in which 

                                                 
236  See, e.g., letters from AFL-CIO (Oct. 31, 2016) [DUSTR letter], CalPERS (Nov. 2, 2016) [DUSTR letter], CFA 

Institute (Dec. 7, 2016) [DUSTR letter], Public Citizen (Oct. 18, 2016) [DUSTR letter], and R.G. Associates, 
Inc. (Nov. 2, 2016) [DUSTR letter].   

237  See id. 

238  See, e.g., letters from CAQ 1, CGCIV 1, Chamber 1, The Clearing House Association L.L.C. (Oct. 28, 2016) 
(“Clearing House”), Davis 1, and Financial Executives International (Oct. 27, 2016) [DUSTR letters]. 

239  See, e.g., letters from CAQ 1, CGCIV 1, Clearing House, Davis 1, Deloitte & Touche LLP (Oct. 5, 2016) 
[DUSTR letter], EEI and AGA 1, NAREIT 1, Shearman 1, and Chamber 1.   

240  See supra note 232 and accompanying text. 



63 
 

the government is a party has not been changed since it was adopted in 1982, we propose to 

increase this threshold to $300,000 to adjust it for inflation.  Using the May 1981 date of the 

proposing release in which the $100,000 threshold was first mentioned and using the Consumer 

Price Index (CPI) Inflation Calculator, we estimate that the threshold would be $285,180.40 as of 

May 2019.241  For ease of reference, we propose rounding this amount up to $300,000.  This 

increase would reflect an inflation adjustment to modernize this disclosure requirement. 

Request for Comment 

30. Would our proposed revisions to Item 103 improve disclosures required by the item?  

Are there different or additional revisions we should consider to improve Item 103 

disclosure? 

31. Should we expressly provide for the use of hyperlinks or cross-references, as 

proposed?  Would the use of multiple hyperlinks be cumbersome for investors?  Are 

there alternative recommendations that would more effectively decrease duplicative 

disclosure?  

32. Should we adjust the $100,000 threshold for environmental proceedings in which the 

government is a party in Item 103 for inflation, as proposed?  Should this threshold be 

adjusted for inflation periodically, such as every three years or some other interval? 

Does CPI inflation provide an appropriate adjustment factor for environmental 

proceedings?  If not, what adjustment factor should we use?   

33. Should we instead adopt an alternative threshold for environmental proceedings 

disclosure?  If so, what threshold should we use, and what data or sources should 

                                                 
241  See CPI Inflation Calculator, available at https://data.bls.gov/cgi-bin/cpicalc.pl.  The calculator uses the 

Consumer Price Index for All Urban Consumers (CPI-U) U.S. city average series for all items, not seasonally 
adjusted.  



64 
 

provide the basis for the alternative threshold?  Should we raise the dollar threshold 

above the proposed $300,000 threshold, e.g., to $500,000, $750,000, or $1,000,000, 

and if so, what would be the basis for that increase?  Are there alternative approaches 

(e.g., a materiality threshold) that would work better than a bright-line dollar 

threshold?  If so, describe the approach and explain why it would be preferable to our 

proposal. 

34. Form 20-F requires a foreign private issuer to provide information on any legal or 

arbitration proceedings, including governmental proceedings pending or known to be 

contemplated, which may have, or have had in the recent past, significant effects on 

the company’s financial position or profitability.242  Similar to the proposed 

amendment to Item 103, should we amend Form 20-F to expressly state that some or 

all of the required information about legal proceedings may be provided by including 

hyperlinks or cross-references to legal proceedings disclosure located elsewhere?  

Should we amend Form 20-F to clarify that a foreign private issuer is only required to 

disclose material legal proceedings?  Would either amendment reduce a foreign 

private issuer’s ability to use a single disclosure document in multiple jurisdictions? 

D. Risk Factors (Item 105) 

Item 105 requires disclosure of the most significant factors that make an investment in 

the registrant or offering speculative or risky and specifies that the discussion should be concise 

and organized logically.243  The principles-based requirement further directs registrants to explain 

                                                 
242  See Form 20-F, Item 8.A.7. 

243  17 CFR 229.105.  As previously noted, in the FAST Act Adopting Release the Commission rescinded 
Item 503(c) of Regulation S-K and replaced it with new Item 105 of Regulation S-K.  See supra note 1.  
Smaller reporting companies are not required to provide the information under Item 105 in their Exchange Act 
filings on Form 10 [17 CFR 249.210], Form 10-K [17 CFR 249.310], and Form 10-Q [17 CFR 249.308a].  See 
Item 1A of Form 10, Form 10-K, and Form 10-Q.   



65 
 

how each risk affects the registrant or the securities being offered, discourages disclosure of risks 

that could apply generically to any registrant and requires registrants to set forth each risk factor 

under a sub-caption that adequately describes the risk.244 

 The Concept Release solicited comments on how to improve risk factor disclosure and 

sought feedback on several potential approaches aimed at facilitating more meaningful 

disclosure.245  Comments received were wide-ranging and no consensus emerged.  Numerous 

commenters supported a flexible or principles-based requirement.246  Several commenters 

recommended integrating risk factor disclosures with other non-risk and risk-related 

disclosures.247  Some commenters recommended further guidance on risk factor disclosure to 

illustrate what registrants should do to meet the Item’s disclosure objectives.248  Other 

commenters supported retaining the current approach to risk factors and opposed any changes to 

the current risk factor guidance and disclosure.249  

The revisions that we are proposing to Item 105 are intended to address the lengthy and 

generic nature of the risk factor disclosure presented by many registrants.  Although the length 

and number of risk factors disclosed by registrants varies, studies show that risk factor 

                                                 
244  See id.   

245  See Concept Release, supra note 6.  The potential approaches discussed included, for example, requiring that 
each risk factor be accompanied by a specific discussion of how the registrant is addressing the risk, requiring 
registrants to discuss the probability of occurrence and the effect on performance of each risk factor and 
requiring registrants to describe their assessment of risks. 

246  See letters from CAQ, AFLAC, Chamber, FedEx, CGCIV, NAM, ACC, SIFMA, E&Y, EEI and AGA, Wilson 
Sonsini, NAREIT, Davis, Fenwick, NIRI, Shearman, PWC, General Motors, and Financial Executives 
International. 

247  See letters from PNC, SIFMA, CalPERS, the Carbon Tracker Initiative, Medical Benefits Trust, E&Y, and 
BDO. 

248  See letters from NYSSCPA, General Motors, and Financial Executives International. 

249  See letters from Ball Corporation, API, and Chevron. 



66 
 

disclosures have increased in recent years.250  For example, one study found that registrants 

increased the length of risk factor disclosures from 2006 to 2014 by more than 50 percent in 

terms of word count, compared to the word count in other sections of Form 10-K that increased 

only by about 10 percent, and that this increase in risk factor word count may not be associated 

with better disclosure.251 

A contributing factor to the increased length of risk factor disclosure appears to be the 

inclusion of generic, boilerplate risks that could apply to any offering or registrant.  Although 

Item 105 instructs registrants not to present risks that could apply to any registrant, and despite 

Commission and staff guidance stating that risk factors should be focused on the “most 

significant” risks and should not be boilerplate,252 it is not uncommon for companies to include 

                                                 
250  See PricewaterhouseCoopers LLP, Stay Informed, 2012 Financial Reporting Survey: Energy industry current 

trends in SEC reporting, Feb. 2013, available at http://www.pwc.com/en_GX/gx/oil-gas-
energy/publications/pdfs/pwc-sec-financial-reporting-energy.pdf (“2012 PWC Report”).  This report reviewed 
financial reporting trends of 87 registrants with market capitalizations of at least $1 billion that apply U.S. 
GAAP in the following subsectors of the energy industry: downstream, drillers, independent oil and gas, major 
integrated oil and gas, midstream and oil field equipment and services.  Based on this study, the average number 
of risk factors in the major integrated oil and gas sector was 12 while the average number of risk factors in the 
midstream sector was 51.  In one sector, the maximum number of risk factors was 95.  See also 
PricewaterhouseCoopers LLP, Stay Informed: 2014 technology financial reporting trends, Aug. 2014, available 
at http://www.pwc.com/en_US/us/technology/publications/assets/pwc-2014-technology-financial-reporting-
trends.pdf  (reviewing the annual and periodic filings of 135 registrants in the software and internet, computers 
and networking, and semiconductors sectors, and finding that over half of the registrants surveyed repeated all 
of their risk factors in their quarterly filings); and Travis Dyer, Mark Lang and Lorien Stice-Lawrence, The 
Ever-Expanding 10-K: Why Are 10-Ks Getting So Much Longer (and Does It Matter)?, The Columbia Law 
School Blue Sky Blog (May 5, 2016), available at http://clsbluesky.law.columbia.edu/2016/05/05/the-ever-
expanding-10-k-why-are-10-ks-getting-so-much-longer-and-does-it-matter/  (reporting the results of a study of 
Form 10-Ks filed between 1996 and 2013 and finding that the length of Form10-K has more than doubled in 
word length, with forward-looking risk factor disclosures being one of three substantial reasons for this 
increase, and contributing to Form 10-Ks becoming more redundant and complex). 

251  See Anne Beatty et al., Sometimes Less is More: Evidence from Financial Constraints Risk Factor Disclosures, 
Mar. 2015, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2186589.  To examine the 
“informativeness” of risk factor disclosures, the authors of this study analyzed risk factor disclosures about 
financial constraints and argue that as litigation risk increased during and after the 2008 financial crisis, 
registrants were more likely to disclose immaterial risks, resulting in a deterioration of disclosure quality. 

252  See, e.g., Plain English Disclosure, Release No. 33-7497 (Jan. 28, 1998) [63 FR 6370 (Feb. 6, 1998)] (“Plain 
English Disclosure Adopting Release”).  See also Updated Staff Legal Bulletin No. 7: Plain English Disclosure 
(June 7, 1999), available at https://www.sec.gov/interps/legal/cfslb7a.htm.  



67 
 

generic risks.  Registrants often disclose risk factors that are similar to those used by others in 

their industry without tailoring the disclosure to their circumstances and particular risk profile. 

To address these concerns, we are proposing the following three amendments to the 

Item 105 risk factor disclosure requirement. 

1. Require summary risk factor disclosure if the risk factor section 
exceeds 15 pages  

As a way of addressing the length of risk factor disclosure, the Commission has 

previously considered requiring a page limit for risk factor disclosure.253  However, the 

Commission has not adopted such a requirement to date in light of comments received in 

response to prior initiatives.  For example, while the Concept Release did not seek specific 

feedback on reducing or limiting the length of risk factor disclosure, several commenters 

nonetheless opposed a page limit.254  Commenters attributed the growing length of risk factor 

disclosure to the risk of litigation associated with failing to disclose risks if events turn 

negative.255  Commenters also stated that many companies will continue to disclose generic risks 

unless assured that litigation will not result from the failure to do so.256  Similar comments were 

received in response to the general solicitation of comment on the Disclosure Effectiveness 

Initiative.257 

                                                 
253  For example, as part of the Plain English Disclosure rulemaking, the Commission solicited comment on 

whether to limit risk factor disclosure to a specific number of risk factors or a specific number of pages.  See 
Plain English Disclosure, Release No. 33-7380 (Jan. 14, 1997), [62 FR 3152, 3163 (Jan. 21, 1997)].  The 
Commission ultimately did not adopt such limits on risk factor disclosure in that rulemaking.  See Plain English 
Disclosure Adopting Release, 63 FR at 6372. 

254  See letters from ACC, API, Chevron, CAQ, PNC, Wilson Sonsini, Maryland Bar Securities Committee, PWC, 
CalPERS, Four Twenty Seven, Fenwick, and NYSSCPA.  

255  See letters from Wilson Sonsini, Maryland State Bar, and PNC. 

256  See id. 

257  See, e.g., letter from The Society of Corporate Secretaries and Governance Professionals (Sept. 10, 2014) 
[Disclosure Effectiveness letter] (referencing the Commission’s proposal to limit the number of risk factors 



68 
 

The Concept Release sought input on whether to require summary risk factor disclosure 

in addition to complete risk factor disclosure and whether highlighting information in a summary 

would help investors better understand a registrant’s risks.258  Several commenters opposed 

summary risk factor disclosure, stating that a summary would not add value and would result in 

repetition of disclosure.259  Further, some commenters noted that registrants provide headings 

before each specific risk factor, which effectively act as a summary.260  Some commenters 

specified that a summary should be encouraged but not required.261  

Given the increasing length of risk factor disclosure and after considering the comments 

received, we propose to amend Item 105 to require summary risk factor disclosure if the risk 

factor section exceeds 15 pages.262  Lengthy risk factor disclosure and the inclusion of many 

general risks add to the complexity of disclosure documents, without necessarily providing 

additional meaningful information to investors.  When registrants provide risk disclosure that 

exceeds 15 pages, we propose to require registrants to provide summary risk factor disclosure in 

the forepart of the prospectus or annual report, as applicable, under an appropriately captioned 

                                                                                                                                                             
included in a filing in connection with the Commission’s Plain English initiative and comments received in 
connection with that initiative, and quoting approvingly from the letter from the Committee on Securities 
Regulation of the Business Law Section of the New York State Bar Association (Mar. 21, 1997), available at 
http://www.sec.gov/rules/proposed/s7397/gutman1.htm, that “no issuer should ever be put in the position of 
choosing significant material risks in order to satisfy a numerical limitation”). 

258  See Concept Release, supra note 6.  Item 3(b) to Form S-11 includes such a requirement, stating that “[w]here 
appropriate to a clear understanding by investors, an introductory statement shall be made in the forepart of the 
prospectus, in a series of short, concise paragraphs, summarizing the principal factors which make the offering 
speculative.”  See 17 CFR 239.18.  The risk factor summary included in a Form S-11 filing typically consists of 
a series of bulleted or numbered statements comprising no more than one page on average. 

259  See letters from SIFMA, Fenwick, NIRI, and General Motors. 

260  See letters from SIFMA, Fenwick, and General Motors. 

261  See letters from E&Y and Deloitte. 

262  Commission staff reviewed a representative sample of filings to help determine the proposed threshold.  See 
infra Section IV, note 314. 



69 
 

heading.  The summary would consist of a series of short, concise, bulleted or numbered 

statements summarizing the principal factors that make an investment in the registrant or 

offering speculative or risky.  The proposed 15-page threshold may provide registrants with an 

incentive to limit the length of their risk factor disclosure.  We estimate that a 15-page threshold 

would affect approximately 40 percent of current filers.263  If registrants determine that it is 

appropriate to provide risk factor disclosure that exceeds 15 pages, summary risk factor 

disclosure highlighted in the forepart of the document should enhance the readability and 

usefulness of this disclosure for investors.  We believe that this approach would appropriately 

balance the need to provide more focused disclosure about a registrant’s risk profile with the 

concerns raised by commenters about imposing page limits on risk factor disclosure. 

2. Replace the requirement to disclose the “most significant” factors 
with the “material” factors 

 
Since the Commission first published guidance on risk factor disclosure in 1964,264 it has 

underscored that risk factor disclosure should be focused on the “most significant” or “principal” 

factors that make a registrant’s securities speculative or risky.265  Notwithstanding this additional 

guidance, the length of risk factor disclosure and the number of risks disclosed has increased in 

recent years.266 

We are proposing to update Item 105 to replace the requirement to discuss the “most 

significant” risks with “material” risks.  Securities Act Rule 405 defines “material” as follows: 

                                                 
263  See infra Section IV.B.2. 

264  See Guides for Preparation and Filing of Registration Statements, Release No. 33-4666 (Feb. 7, 1964) [29 FR 
2490 (Feb. 15, 1964)] (“1964 Guides”).   

265  “Principal” was the term used in the 1982 Integrated Disclosure Adopting Release and “most significant” was 
the term used in the Plain English Disclosure Adopting Release.   

266  See supra notes 250 and 251 and accompanying text. 



70 
 

The term material, when used to qualify a requirement for the furnishing of information 

as to any subject, limits the information required to those matters to which there is a 

substantial likelihood that a reasonable investor would attach importance in determining 

whether to purchase the security.267 

We propose revising the standard for disclosure from the “most significant” risks to “material” 

risks to focus registrants on disclosing the risks to which reasonable investors would attach 

importance in making investment decisions.  We believe that this approach could result in risk 

factor disclosure that is more tailored to the particular facts and circumstances of each registrant, 

which would reduce the amount of risk factor disclosure that is not material and potentially 

shorten the length of the risk factor discussion, to the benefit of both investors and registrants.268 

3. Require registrants to organize risk factors under relevant headings 
 

Since 1964, the Commission has periodically emphasized the importance of organized 

and concise risk factor disclosure.269  The Concept Release solicited feedback on the ways in 

which we could improve the organization of registrants’ risk factor disclosure to help investors 

better navigate the disclosure.270  Several commenters supported grouping similar risks 

together,271 with one commenter noting that the current organizational structure, and not the 

                                                 
267  17 CFR 230.405.  Exchange Act Rule 12b-2 defines materiality similarly:  “The term ‘material,’ when used to 

qualify a requirement for the furnishing of information as to any subject, limits the information required to those 
matters to which there is a substantial likelihood that a reasonable investor would attach importance in 
determining whether to buy or sell the securities registered.”  12 CFR 240.12b-2 (emphasis added). 

268  For a discussion of the potential economic effects of switching from a “most significant” risks to a “material 
risks” disclosure standard, including the possibility that the change could result in either more or less expansive 
disclosure, see infra Section IV.B.2.iv.  

269  See 1964 Guides, supra note 264; 1982 Integrated Disclosure Adopting Release, supra note 9; and Securities 
Offering Reform, Release No. 33-8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)]. 

270  See Concept Release, supra note 6. 

271  See letters from PNC, Fenwick, and Wilson Sonsini. 



71 
 

length, of risk factor disclosure, should be the primary concern.272  As stated above, some 

commenters noted that registrants often provide headings before each specific risk factor, which 

act as a summary.273  Further, one commenter noted that the grouping of related risk factors 

together under subheadings for clarity is a best practice currently used by many registrants as 

risk factors have lengthened.274   

The Concept Release also solicited comment on whether generic risk factors are 

important to investors and if not, how to discourage this disclosure.275  As noted above, several 

commenters discussed the importance of including both specific and generic risk disclosures.276  

One of these commenters supported revising the current text of Item 105 to eliminate the 

proscription against including “risks that could apply to any issuer or offering.”277  In contrast, 

many commenters opposed inclusion of generic risk factors.278   

We are proposing to require registrants to organize their risk factor disclosure under 

relevant headings in an effort to help readers comprehend lengthy risk factor disclosures.  As 

noted above, many registrants already do this and we believe that further organization within risk 

factor disclosure will improve the effectiveness of the disclosures.  In addition, if a registrant 

                                                 
272  See letter from Wilson Sonsini. 

273  See letters from SIFMA, Fenwick, and General Motors. 

274  See letter from Fenwick. 

275  See Concept Release, supra note 6. 

276  See letters from E&Y, Maryland Bar Securities Committee, and CalPERS (refuting the notion that generic and 
boilerplate risk factors cannot impart material information); see also letter from NYSSCPA (stating that generic 
and boilerplate risk factors should be included if critical to the overall understanding of a registrant’s business 
environment). 

277  See letter from E&Y. 

278  See letters from EEI and AGA, Investment Program Association (July 21, 2016), NAREIT, Better Markets 
(July 21, 2016), Davis, Fenwick, Reardon, NIRI, Financial Services Roundtable, Shearman and A. Radin. 



72 
 

chooses to disclose a risk that could apply to other companies or securities offerings and the 

disclosure does not provide an explanation of why the identified risk is specifically relevant to an 

investor in its securities, we are proposing to require the registrant to disclose such risk factors at 

the end of the risk factor section under the caption “General Risk Factors.” 

Request for Comment 

35. Would our proposed approach to Item 105 result in improved risk factor disclosure 

for investors? 

36. Would our proposal to require summary risk factor disclosure if the risk factor 

discussion exceeds 15 pages result in improved risk factor disclosure for investors? 

37. Is 15 pages an appropriate number of pages to trigger summary risk factor disclosure?  

If not, what is the appropriate page limit that should trigger summary risk factor 

disclosure?  Is there a better alternative than a page limit to trigger summary risk 

factor disclosure (e.g., should we consider a word limit instead)? 

38. If summary risk factor disclosure is triggered, should we require the summary to 

consist of a series of short, concise, bulleted or numbered statements summarizing the 

principal factors that make an investment in the registrant or offering speculative or 

risky, as proposed?  Should we in addition or instead limit the length of the summary 

disclosure (e.g., no more than one page)?  Should we require the bulleted or 

numbered statements summarizing the risk factors to also include hyperlinks to each 

of the risk factors summarized? 

39.  If the risk factors discussion exceeds 15 pages, should we require a registrant to 

include only those risk factors that pose the greatest risk to the registrant in the first 

15 pages instead of requiring it to prepare a risk factor summary?  



73 
 

40. Should we specify that registrants should present summary risk factor disclosure in 

the forepart of the prospectus or annual report, as proposed?  Alternatively, should the 

summary immediately precede the full discussion of risk factors?  Currently, when 

the risk factor discussion is included in a registration statement, it must immediately 

follow the summary section.  Should registrants be permitted to provide the full 

discussion of risk factors elsewhere in the document to enhance readability when a 

summary section is included? 

41. Would changing the standard from the requirement to discuss the “most significant” 

factors to the “material” factors, as proposed, result in more tailored disclosure and 

reduce the length of the risk factor disclosure?  Would changing the standard, as 

proposed, result in other consequences that we have not considered?  If so, provide 

specific examples of such consequences. 

42. Would our proposal that registrants organize their risk factors under relevant headings 

improve disclosures for investors? 

43. Should we require registrants to prioritize the order in which they discuss their risk 

factors so that the risk factors that pose the greatest risk to the registrant are discussed 

first?  Would this improve disclosures for investors or be unduly burdensome for 

registrants?   

44. If the registrant discloses generic risk factors, should the registrant be required to 

disclose them at the end of the risk factor section, and caption them as General Risk 

Factors, as proposed?   



74 
 

45. Should we require registrants to explain how generic, boilerplate risk factors are 

material to their investors, and what, if anything, management does to address these 

risks? 

46. Foreign private issuers that file their Exchange Act annual reports on Form 20-F must 

provide risk factor disclosure as required by that Form whereas foreign private issuers 

that file registration statements on Forms F-1, F-3, and F-4 must provide risk factor 

disclosure pursuant to Item 105.  Currently Form 20-F does not require a summary of 

the risk factors if the risk factor disclosure exceeds a certain page limit, does not state 

that material risks should be disclosed, and does not require the presentation of risk 

factors, including generic risk factors, under appropriate headings.  Should we amend 

Form 20-F to include any or all of the proposed risk factor disclosure provisions 

under Item 105?  If we do not similarly amend risk factor disclosure under Form 20-

F, would having one set of risk factor disclosure requirements for Form 20-F annual 

reports and another set for registration statements on Forms F-1, F-3, and F-4 cause 

confusion for registrants or investors? 

47. How might we further improve risk factor disclosure? 

GENERAL REQUEST FOR COMMENTS III. 

We request and encourage any interested person to submit comments on any aspect of 

our proposals, other matters that might have an impact on the proposed amendments, and any 

suggestions for additional changes.  With respect to any comments, we note that they are of 

greatest assistance to our rulemaking initiative if accompanied by supporting data and analysis of 

the issues addressed in those comments and by alternatives to our proposals where appropriate. 

ECONOMIC ANALYSIS IV. 

This section analyzes the expected economic effects of the proposed amendments relative 



75 
 

to the current baseline, which consists of both the regulatory framework of disclosure 

requirements in existence today and the current use of such disclosure by investors.  As 

discussed above, we propose amendments to modernize and simplify the description of business 

(Item 101), legal proceedings (Item 103), and risk factor (Item 105) disclosure requirements in 

Regulation S-K.279  An important objective of the proposed amendments is to revise Items 

101(a), 101(c), and 105 to be more principles-based.  Overall, investors and registrants may 

benefit from the proposed principles-based approach if the existing prescriptive requirements 

result in disclosure that is not material to an investment decision and is costly to provide.  We 

acknowledge the risk that emphasizing a principles-based approach and granting registrants more 

flexibility to determine what and how much disclosure about a topic to provide may result in the 

elimination of some information to investors.  However, we believe that any such loss of 

information would be limited given that, under the proposed principles-based approach, 

registrants still would be required to provide disclosure about these topics if they are material to 

the business. 

We are sensitive to the costs and benefits of these amendments.  The discussion below 

addresses the potential economic effects of the proposed amendments, including the likely 

benefits and costs, as well as the likely effects on efficiency, competition, and capital 

                                                 
279  While Items 101, 103 and 105 have not undergone significant revisions in over thirty years, many characteristics 

of the registrants have changed substantially over this time period.  For example, in 1988, the largest 500 U.S. 
companies in Standard & Poor’s Compustat database had an average market capitalization of $4.27 billion, 
foreign income of $281 million, and ratio of intangible assets to market capitalization of 8.44%.  The largest 100 
companies had an average market capitalization of $12.25 billion, foreign income of $730 million, and ratio of 
intangible assets to market capitalization of 7.07%.  In 2018, the largest 500 companies had an average market 
capitalization of $49.10 billion, foreign income of $1.70 billion, and ratio of intangible assets to market 
capitalization of 29.70%.  The largest 100 companies had an average market capitalization of $ 141.46 billion, 
foreign income of $5.18 billion, and ratio of intangible assets to market capitalization of 32.62%.  There is also 
significant turnover among the largest companies: approximately 34% of top 50 companies in 1988 were still in 
the top 50 companies on 2018.  We believe that certain of the proposed amendments (the disclosure of the 
material effects of compliance with material government regulations, including foreign government regulations) 
would provide investors with information consistent with the changing nature of the registrants.  



76 
 

formation.280  At the outset, we note that, where possible, we have attempted to quantify the 

benefits, costs, and effects on efficiency, competition, and capital formation expected to result 

from the proposed amendments.  In many cases, however, we are unable to quantify the 

economic effects because we lack information necessary to provide a reasonable estimate.  For 

example, we are unable to quantify, with precision, the costs to investors of utilizing alternative 

information sources under each disclosure item and the potential information processing cost 

savings that may arise from the elimination of disclosures not material to an investment decision. 

A. Baseline and Affected Parties 

Our baseline includes the current disclosure requirements under Items 101, 103, and 105 

of Regulation S-K, which apply to registration statements, periodic reports, and certain proxy 

statements filed with the Commission.  Thus, the parties that are likely to be affected by the 

proposed amendments include investors and other users of registration statements and periodic 

reports, and proxy statements, such as financial analysts, as well as registrants subject to 

Regulation S-K. 

The proposed amendments affect both domestic issuers and foreign private issuers281 that 

file on domestic forms282 and foreign private issuers that file on foreign forms.283  We estimate 

                                                 
280  Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] 

require the Commission, when engaging in rulemaking where it is required to consider or determine whether an 
action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition, and capital formation.  Further, Section 23(a)(2) of the 
Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission, when making rules under the Exchange Act, to 
consider the impact that the rules would have on competition, and prohibits the Commission from adopting any 
rule that would impose a burden on competition not necessary or appropriate in furtherance of the Exchange 
Act.  

281  See supra note 24 for the definition of foreign private issuer.   

282  The number of issuers that file on domestic forms is estimated as the number of unique issuers, identified by 
Central Index Key (CIK), that filed Forms 10-K and 10-Q, or an amendment thereto, with the Commission 
during calendar year 2018.  We believe that these filers are representative of the registrants that would primarily 
be affected by the proposed amendments.  For purposes of this economic analysis, these estimates do not 
include issuers that filed only initial domestic Securities Act registration statements during calendar year 2018, 



77 
 

that approximately 6,919 registrants filing on domestic forms284 and 393 foreign private issuers 

filing on foreign forms would be affected by the proposed amendments.  Among the registrants 

that file on domestic forms, approximately 29 percent are large accelerated filers, 19 percent are 

accelerated filers, 19 percent are non-accelerated filers, and 33 percent are smaller reporting 

companies.  In addition, we estimate that approximately 21.3 percent of domestic issuers are 

emerging growth companies.285 

B. Potential Costs and Benefits 

In this section, we discuss the anticipated economic benefits and costs of the proposed 

amendments.  We first analyze the overall economic effects of shifting toward a more principles-

based approach to disclosure, which is one of the main objectives of the proposed amendments.  

We then discuss the potential costs and benefits of specific proposed amendments. 

1. Principles-Based versus Prescriptive Requirements 

                                                                                                                                                             
and no Exchange Act reports, in order to avoid including entities, such as certain co-registrants of debt 
securities, which may not have independent reporting obligations and therefore would not be affected by the 
proposed amendments.  Nevertheless, the proposed amendments would affect any registrant that files a 
Securities Act registration statement and assumes Exchange Act reporting obligations.  We believe that most 
registrants that have filed a Securities Act registration statement, other than the co-registrants described above, 
would be captured by this estimate through their Form 10-K and Form 10-Q filings.  The estimates for the 
percentages of smaller reporting companies, accelerated filers, large accelerated filers, and non-accelerated 
filers are based on data obtained by Commission staff using a computer program that analyzes SEC filings, with 
supplemental data from Ives Group Audit Analytics. 

283  The number of affected issuers that file foreign forms is estimated as the number of unique companies, 
identified by Central Index Key (CIK), that filed Forms F-1, F-3, and F-4, or an amendment thereto with the 
Commission during calendar year 2018.  See also supra note 24. 

284  This number includes fewer than 25 foreign issuers that file on domestic forms and approximately 100 business 
development companies.   

285  An “emerging growth company” is defined as an issuer that had total annual gross revenues of less than $1.07 
billion during its most recently completed fiscal year.  See 17 CFR 230.405 and 17 CFR 240.12b-2.  See Rule 
405; Rule 12b-2; 15 U.S.C. 77b(a)(19); 15 U.S.C. 78c(a)(80); and Inflation Adjustments and Other Technical 
Amendments under Titles I and II of the JOBS Act, Release No. 33- 10332 (Mar. 31, 2017) [82 FR 17545 (Apr. 
12, 2017)].  We based the estimate of the percentage of emerging growth companies on whether a registrant 
claimed emerging growth company status, as derived from Ives Group Audit Analytics data. 



78 
 

Prescriptive requirements employ bright-line, quantitative thresholds to identify when 

disclosure is required, or require registrants to disclose the same types of information.  

Principles-based requirements, on the other hand, provide registrants with the flexibility to 

determine (i) whether certain information is material, and (ii) how to disclose such information. 

In this release, we propose to revise Items 101(a), 101(c), and 105 to be more principles 

based.286  Principles-based requirements may result in more or less detail than prescriptive 

requirements, which set forth explicit criteria for disclosure.  The economic effects of replacing a 

prescriptive requirement with a more principles-based disclosure standard based on materiality 

depend on a variety of factors, including the preferences of investors, the compliance costs of 

producing the disclosure and the nature of the information to be disclosed. 

For certain existing disclosure requirements, shifting to a more principles-based approach 

could benefit issuers with no loss of investor protection because the current requirements 

occasionally result in some disclosure that is immaterial to an investment decision and costly for 

issuers to provide.  Elimination of disclosure that is not material could reduce compliance 

burdens and potentially benefit investors, to the extent it improves the readability and 

conciseness of the information provided.287  In addition, a principles-based approach may permit 

                                                 
286  Although Items 101(c) and Item 105 use a principles-based approach, based on comments received on prior 

initiatives, it appears that some registrants may view these items as imposing prescriptive requirements.  See 
supra Sections II.B and II.D.  Therefore, we are proposing amendments to emphasize the principles-based 
approach of these items.  

287  See A. Lawrence, Individual Investors and Financial Disclosure, 56 J. Acct. & Econ., 130−147 (2013).  Using 
data on trades and portfolio positions of 78,000 households, this article shows that individuals invest more in 
firms with clear and concise financial disclosures.  This relation is reduced for high frequency trading, 
financially-literate, and speculative individual investors.  The article also shows that individuals’ returns 
increase with clearer and more concise disclosures, implying such disclosures reduce individuals’ relative 
information disadvantage.  A one standard deviation increase in disclosure readability and conciseness 
corresponds to return increases of 91 and 58 basis points, respectively.  The article acknowledges that, given the 
changes in financial disclosure standards and the possible advances in individual investor sophistication, the 
extent to which these findings, which are based on historical data from the 1990s, would differ from those today 
is unknown.  Recent advances in information processing technology, such as machine learning for textual 
analysis, may also affect the generalizability of these findings. 



79 
 

or encourage registrants to present more tailored information, which also may benefit 

investors.288 

On the other hand, shifting to a more principles-based approach may result in the 

elimination of disclosure material to an investment decision if issuers misjudge what information 

is material.289  To the extent that prescriptive requirements result in more complete disclosures, 

such requirements could benefit investors by reducing information asymmetry.  Reducing 

information asymmetry may also benefit registrants by improving stock market liquidity and 

decreasing cost of capital.290  Further, prescriptive standards could enhance the comparability and 

verifiability of information.291  We acknowledge, however that differences between principles-

                                                 
288  A number of academic studies have explored the use of prescriptive thresholds and materiality criteria.  Many 

of these papers highlight a preference for principles-based materiality criteria.  See, e.g. Eugene A. Imhoff Jr. 
and Jacob K. Thomas, Economic consequences of accounting standards: The lease disclosure rule change, 10.4 
J. Acct. & Econ. 277-310 (1988) (providing evidence that management modifies existing lease agreements to 
avoid crossing rules-based criteria for lease capitalization); Cheri L. Reither, What are the best and the worst 
accounting standards?, 12.3 Acct. Horizons 283 (1998) (documenting that due to the widespread abuse of 
bright-lines in rules for lease capitalization, SFAS No. 13 was voted the least favorite FASB standard by a 
group of accounting academics, regulators, and practitioners); Christopher P. Agoglia, Timothy S. Doupnik, and 
George T. Tsakumis. Principles-based versus rules-based accounting standards: The influence of standard 
precision and audit committee strength on financial reporting decisions, 86.3 The Acct. Rev. 747-767 (2011) 
(conducting experiments in which experienced financial statement preparers are placed in a lease classification 
decision context and finding that preparers applying principles-based accounting are less likely to make 
aggressive reporting decisions than preparers applying a more precise rules-based standard and supporting the 
notion that a move toward principles-based accounting could result in better financial reporting); Usha 
Rodrigues and Mike Stegemoller, An inconsistency in SEC disclosure requirements? The case of the 
“insignificant” private target, 13.2-3 J. Corp. Fin. 251-269 (2007) (providing evidence, in the context of 
mergers and acquisitions, where rule-based thresholds deviate from investor preferences).  Papers that highlight 
a preference for rules-based materiality criteria are cited below. 

289  The presence of other controls, including accounting controls, likely reduces the risk that issuers will misjudge 
what information is material. 

290  See, e.g., C. Leuz and P. Wysocki, The Economics of Disclosure and Financial Reporting Regulation:  
Evidence and Suggestions for Future Research, 54.2 Journal of Accounting Research 525-622 (2016) 
(surveying the empirical literature on the economic consequences of disclosure and discussing potential capital‐
market benefits from disclosure and reporting, such as improved market liquidity and decreased cost of capital). 

291  See Mark W. Nelson, Behavioral evidence on the effects of principles-and rules-based standards, 17.1 
Accounting Horizons 91-104 (2003); and Katherine Schipper, Principles-based accounting standards, 17.1 
Accounting Horizons 61-72 (2003) (noting potential advantages of rules-based accounting standards, including: 
increased comparability among firms, increased verifiability for auditors, and reduced litigation for firms).  See 
also Randall Rentfro and Karen Hooks, The effect of professional judgment on financial reporting 
comparability, 1 Journal of Accounting and Finance Research 87-98 (2004) (finding that comparability in 



80 
 

based standards and prescriptive standards have been studied in the accounting context.  These 

differences may be narrower in the context of the proposed amendments due to the qualitative 

nature of the disclosures in Items 101(a), 101(c), and 105.  Prescriptive requirements also may be 

easier to apply, saving registrants the costs associated with materiality assessments.  

Some of the costs of shifting to a more principles-based approach could be mitigated by 

external disciplines, such as the Commission staff’s filing review program.  In addition, 

registrants would remain subject to the antifraud provisions of the securities laws.292  There also 

may be incentives for registrants to voluntarily disclose additional information if the benefits of 

reduced information asymmetry exceed the disclosure costs.  

Differences between the principles-based and prescriptive approaches are likely to vary 

across registrants, investors, and disclosure topics.  Despite potential costs associated with 

materiality assessments, replacing prescriptive requirements with principles-based requirements 

is likely to reduce compliance costs because registrants would have the flexibility to determine 

whether certain information is material under the principles-based approach.  To the extent the 

principles-based approach reduces compliance costs, the cost reduction should be more 

beneficial to smaller registrants that are financially constrained.  Although eliminating 

information that is not material should benefit all investors, it could benefit retail investors more 

since they are less likely to have the time and resources to devote to reviewing and evaluating 

disclosure.  At the same time, smaller registrants with less established reporting histories may be 

                                                                                                                                                             
financial reporting may be reduced under principles-based standards, which rely more heavily on the exercise of 
professional judgment but comparability may improve as financial statement preparers become more 
experienced and hold higher organizational rank); Andrew A. Acito, Jeffrey J. Burks, and W. Bruce Johnson, 
The Materiality of Accounting Errors: Evidence from SEC Comment Letters, 36.2 Contemp. Acct. Res. 839, 
862 (2019) (studying managers’ responses to SEC inquiries about the materiality of accounting errors and 
finding that managers are inconsistent in their application of certain qualitative considerations and may omit 
certain qualitative considerations from their analysis that weigh in favor of an error’s materiality).   

292  See, e.g., Exchange Act Rule 10b-5(b) [17 CFR 240.10b-5(b)].81 
 

the most at risk of persistent information asymmetries if the principles-based approach results in 

loss of information material to investors.  In the event of loss of material information (the risk of 

which, as noted above, is offset by mitigants including accounting controls and the antifraud 

provisions of the securities laws), retail investors in these registrants may be more affected than 

institutional investors because obtaining information from alternative sources could involve 

monetary costs, such as database subscriptions, or opportunity costs, such as time spent 

searching for alternative sources, and these costs may fall more heavily on retail investors than 

on institutional investors. 

Across different disclosure topics, the principles-based approach may be more 

appropriate for topics where the relevant information tends to vary greatly across companies 

because, in these situations, the more standardized prescriptive requirements are less likely to 

elicit information that is tailored to a specific company.  A principles-based approach may also 

be more appropriate for disclosures that are episodic in nature since investors may derive 

relatively less value from comparisons of such disclosure for a given registrant over time. In 

addition, registrants may derive relatively less benefit from applying a standardized prescriptive 

approach to episodic disclosures, which may be less amenable to routinized reporting than 

periodic disclosures of information that arise on a regular basis. 

2. Benefits and Costs of Specific Proposed Amendments 

 We expect the proposed amendments would result in costs and benefits to registrants and 

investors, and we discuss those costs and benefits qualitatively, item by item, in this section.  The 

proposed changes to each item would impact the compliance burden for registrants in filing 

particular forms.  Overall, we expect the net effect of the proposed amendments on a registrant’s 

compliance burden to be limited.  The quantitative estimates of changes in those burdens for 



82 
 

purposes of the Paperwork Reduction Act are further discussed in Section V.  As explained in 

the item-by-item discussion of the proposed amendments in this section, we expect certain 

aspects of the proposed amendments to increase compliance burdens, while others are expected 

to decrease the burdens.  Taken together, we estimate that the proposed amendments are likely to 

result in a net decrease of between three and five burden hours per form for purposes of the 

Paperwork Reduction Act.293 

   i. General Development of Business (Item 101(a)) 

Item 101(a) requires a description of the general development of the registrant’s business, 

such as the year in which the registrant was organized and the nature and results of any merger of 

the registrant or its significant subsidiaries.  Some academic research has found that information 

required under Item 101(a) is relevant to firm value.  For example, the registrant’s age can 

predict its growth rates294 and corporate innovation.295  Merger activities can affect shareholder 

value and predict future performance.296  Given the relevance of such information to firm value, 

and thus investors, the effects of the proposed amendments to Item 101(a) on investors would 

                                                 
293     See infra Section V.B. 

294  See David S. Evans, The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing 
Industries, 35 J. Indus. Econ. 567-81 (1987) (finding that firm growth decreases with both firm size and age). 
See also C. Arkolakis, T. Papageorgiou, and O. A. Timoshenko, Firm Learning and Growth, 27 Rev. Econ. 
Dyn. 146–168 (2018) (developing a theoretical model showing that firm growth rates decrease with firm age 
and calibrating the model using plant-level data). 

295  See Elena Huergo and Jordi Jaumandreu, How Does Probability of Innovation Change with Firm Age?, 22 
Small Bus. Econ. 193-207 (2004) (finding that, as a firm’s age increases, the innovation rate diminishes and 
attributing this finding to the rapid innovation necessary for a firm to compete when entering a market);  A. 
Coad, A. Segarra, and M. Teruel, Innovation and Firm Growth: Does Firm Age Play a Role?, 45 Res. Policy 
387-400 (2016) (finding that young firms undertake riskier innovation and receive larger benefits from R&D).  

296  See Sara B. Moeller, Frederik P. Schlingemann, and Rene M. Stulz, Wealth Destruction on a Massive Scale? A 
Study of Acquiring-Firm Returns in the Recent Merger Wave, 60 J. Fin. 757-82 (2005) (finding that, although 
small gains were made in the 1980s, investors experienced negative gains from 1998 to 2001, and firms that 
announce acquisitions with large dollar losses performed poorly afterwards).  See also Ran Duchin and Breno 
Schmidt, Riding the Merger Wave: Uncertainty, Reduced Monitoring, and Bad Acquisitions, 107 J. Fin. Econ. 
69-88 (2013) (finding that the average long-term performance of acquisitions initiated during merger waves is 
significantly worse than those initiated off the waves).  



83 
 

depend on whether they result in more concise297 and material disclosures of business 

development information under Item 101(a). 

We propose to revise the requirements in Item 101(a) to be more principles based, 

requiring disclosure of information material to an understanding of the general development of 

the registrant’s business.  The shift to a more principles-based approach for these requirements 

would give rise to the potential economic effects discussed in Section IV.B.1 above. 

Currently, Item 101(a) requires registrants to describe their business development during 

the past five years, or such shorter period as the registrant may have engaged in business.  We 

propose to eliminate the prescribed five-year timeframe for this disclosure.  Eliminating this 

specific requirement would provide registrants with flexibility to choose a different timeframe 

that is more relevant in describing their business development to investors.  For example, a long 

timeframe might be less appropriate for registrants operating in rapidly changing environments 

where historical information becomes irrelevant in a short period of time.  Given that registrants 

have the flexibility to determine the appropriate timeframe, this proposed amendment is likely to 

reduce compliance costs.  Investors may also benefit if the timeframe chosen by the registrants is 

more consistent with their preferences than the prescribed five-year timeframe, but may be 

harmed if the timeframe chosen by the registrants is less consistent with their preferences than 

the prescribed five-year timeframe. 

Currently, Item 101(a) requires registrants to describe their business development in 

registration statements and annual reports.  For filings subsequent to the initial registration 

statement, we propose revising Item 101(a)(1) to require only an update of this disclosure with 

an active hyperlink to the registrant’s most recently filed disclosure that, together with the 
                                                 
297  Investors may benefit from more concise disclosure that facilitates their ability to focus on information material 

to an investment decision.  See supra note 286 for details. 



84 
 

update, would present a complete discussion of the general development of its business.298  If 

duplicative disclosure distracts investors from other important information, the proposal may 

benefit investors by highlighting material developments in the reporting period.  However, to the 

extent that historical information would be available through hyperlinking as opposed to being in 

the same filing, investors would have to spend more time to retrieve the information from 

another disclosure document.  Because the proposed provisions would involve the use of only 

one hyperlink, we believe the increase in retrieval costs for investors would be minimal.  While 

registrants may incur minimal compliance costs to include hyperlinks, we believe registrants 

would benefit from the proposal due to the reduction in costs to disclose duplicative information. 

We propose to amend Item 101(a) to provide a non-exclusive list of topics that should be 

disclosed if material.  Providing potential disclosure topics should clarify the requirements and 

avoid potential confusion among registrants.  Besides items currently required under Item 101(a), 

the proposed topics also include material changes to a registrant’s previously disclosed business 

strategy, which is not currently required to be disclosed.  Since several studies have found that 

business strategy is a critical determinant of corporate success299 and an essential component of 

business model design,300 investors may benefit from any increase in the disclosure of material 

                                                 
298  A registrant would be required to incorporate by reference the earlier disclosure into the updated filing.  See 

supra Section II.A.2.  We are also proposing to permit a smaller reporting company, for filings other than initial 
registration statements, to provide an update to the general development of the business disclosure, instead of a 
full discussion, that complies with proposed Item 101(a)(2), including the proposed hyperlink requirement.   

299  See Jay B. Barney, Strategic Factor Markets: Expectations, Luck, and Business Strategy 32 Mgmt. Sci. 1231-41 
(1986) (suggesting that strategies focusing on creating imperfectly competitive product markets may not 
generate superior performance if the cost of implementing such strategies is high, and that strategic choices 
should flow mainly from the analysis of its antecedent unique skills and capabilities, rather than from the 
analysis of its competitive environment).  See also T. Ritter and H. G. Gemunden, The Impact Of A Company’s 
Business Strategy on Its Technological Competence, Network Competence and Innovation Success, 57(5) J. 
Bus. Res. 548-556 (2004) (finding that a company’s innovation success is positively correlated with the strength 
of its technology-oriented business strategy). 

300  See David J. Teece, Business Models, Business Strategy and Innovation, 43 Long Range Plan. 172-94 (2009)  
(examining the significance of business models and explorings their connections with business strategy, 



85 
 

changes to previously disclosed business strategies.  Since we are not proposing to make the 

disclosure of business strategy mandatory if a registrant has not previously disclosed its business 

strategy, the costs of revealing proprietary information that could be harmful to registrants’ 

competitive positions should be somewhat limited. 

Overall, investors and registrants may benefit from the proposed amendments to Item 

101(a) if the existing requirements elicit disclosure that is not material to an investment decision 

and/or is more costly to provide.  However, granting registrants additional flexibility to 

determine (i) whether certain information is material, and (ii) how to disclose such information 

may result in the elimination of information in cases in which issuers stop disclosing information 

material to an investment decision. 

   ii. Narrative Description of Business (Item 101(c)) 

Item 101(c) requires a narrative description of the registrant’s business.  The current 

requirement identifies twelve specific items that must be disclosed to the extent material to an 

understanding of the registrant’s business taken as a whole.  We propose to revise the 

requirements in Item 101(c) to be more clearly principles based.  The proposed amendments 

would require a description of the business and would set forth seven non-exclusive examples of 

information to be disclosed if material to an understanding of the business.  These examples 

include some, but not all, of the topics currently required under Item 101(c) as well as some 

additional topics.  Emphasizing a principles-based approach to Item 101(c) would give rise to the 

potential economic effects discussed in Section I.B.1 above.  In addition, eliminating prescriptive 

                                                                                                                                                             
innovation management, and economic theory).  See also P. Spieth, D. Schneckenberg, K. Matzler, Exploring 
the Linkage between Business Model (&) Innovation and the Strategy of the Firm, 46 R&D Mgmt. 403-413 
(2016) (examining firm strategy-business model linkage and exploring the role of business model innovation as 
analytic perspective for identifying sources of firm performance). 



86 
 

requirements for certain items, such as the number of employees, may diminish comparability 

across firms. 

The topics that would be retained as examples under the proposed amendments are: 

(1) principal products produced and services rendered, and dependence on certain customers; (2) 

new products and competitive conditions; (3) sources and availability of raw materials and 

intellectual property; (4) business subject to renegotiation or termination of government 

contracts; (5) seasonality of the business; and (6) the material effects of compliance with 

environmental laws.301  Since the information required under Item 101(c) may be relevant to firm 

value,302 investors and registrants would likely benefit if the proposed examples elicit 

information material to an investment decision while allowing registrants to tailor the disclosure 

to their specific circumstances. 

 Two of the proposed topics are more expansive than the current disclosure requirements 

contained in Item 101(c).  We propose to replace the requirement to disclose the number of 

employees with a description of the registrant’s human capital resources, including in such 

description human capital measures or objectives that management focuses on in managing the 

business, to the extent such disclosures would be material to an understanding of the registrant’s 

business.  The proposed amendment provides non-exclusive examples of human capital 

measures and objectives, such as measures or objectives that address the attraction, development, 
                                                 
301  The current Item 101(c) requirement to disclose the number of a registrant’s employees potentially would be 

encompassed by the proposed more expansive human capital resources disclosure topic.  See supra Section 
II.B.7. 

302  For example, some academic research has found that the introduction of a new product increases long-term 
financial performance of the company and firm value.  See Dominique Hanssens, Koen Pauwels, Jorge Silva-
Risso, and Shuba Srinivasan, New Products, Sales Promotions, and Firm Value:The Case of the Automobile 
Industry, 68 J. Marketing 142-56 (2004).and Amil Petrin, Quantifying the Benefits of New Products: The Case 
of the Minivan, 110  J. Pol. Econ. 705-29 (2002).  Some academic research has also found that patents have a 
significant impact on firm-level productivity and market value.  See Nicholas Bloom and John Van Reenen, 
Patents, Real Options and Firm Performance, 112 Econ. J. C97-C116 (2002), and Zvi Griliches, Market Value, 
R&D and Patents, 7 Econ. Letters 183-87 (1981).   



87 
 

and retention of personnel.  In one meta-analysis, which reviewed 66 studies, the authors found 

that besides the number of employees, other human capital characteristics, including education, 

experience, and training,303 have positive effects on firm performance.  Another author found 

that turnover rates reflect human resource management practices.304  Therefore, it is possible that 

investors may benefit from additional information elicited by the human capital topic.  

Registrants would incur incremental compliance costs to provide this additional information, if 

they determine that it is material. 

 We also propose to replace the requirement to disclose the material effects on the 

registrant of compliance with environmental laws with a disclosure topic that covers the material 

effects of compliance with material government regulations, including environmental laws.  To 

the extent that information about compliance with government regulations affects firm value,      

investors may benefit from additional information about the effects of material government 

regulations.  Registrants, however, will incur incremental compliance costs to provide this 

information, if they determine that it is material to an understanding of their business.  To the 

extent that many registrants already disclose such information, the incremental benefits and costs 

could be limited. 

Some of the disclosure requirements currently contained in Item 101(c) would not be 

included as potential topics in the revised rule.305  To the extent that the exclusion of these items 

                                                 
303  See T. R. Crook, S. Y Todd, J. G. Combs, D. J. Woehr, & D. J. Ketchen Jr., Does human capital matter? A 

meta-analysis of the relationship between human capital and firm performance, 96  J. Appl. Psychol. 443–56 
(2011).   

304  See M.A. Huselid, The Impact of Human Resource Management Practices on Turnover, Productivity, and 
Corporate Financial Performance, 38 Acad. Manag. J. 635–672 (1995). 

305  The proposed amendments would no longer list the following topics: disclosure about new segments and dollar 
amount of backlog orders believed to be firm, in addition to working capital practices, which we discuss below.       



88 
 

results in a loss of material information,306 there may be costs to investors.  However, we believe 

that any such costs would be limited given that, under the proposed principles-based approach, 

the list of disclosure topics is not exhaustive and registrants still would be required to provide 

disclosure about these topics if they are material to an understanding of the business.     

Additionally, in an effort to consolidate working capital disclosure in one location and to 

avoid duplicative disclosure, we propose not to include working capital practices as a potential 

topic in Item 101(c), with the expectation that working capital would be discussed in a 

registrant’s MD&A, to the extent material.  If duplicative disclosure distracts investors from 

other important information, the proposal may benefit investors by reducing repetition and 

facilitating more efficient information processing.  However, to the extent that information on 

working capital practices would no longer be readily available in multiple locations, investors 

may have to spend more time to retrieve the information.  Registrants may marginally benefit 

from reduced compliance costs from the elimination of duplicative disclosure. 

Overall, investors and registrants may benefit from the proposed amendments to Item 

101(c) if the existing requirements result in disclosure that is not material to an investment 

decision and/or is costly to provide.   

   iii. Legal Proceedings (Item 103)  

Item 103 requires disclosure of material pending legal proceedings and other relevant 

information about the proceedings, such as the name of the court, the date instituted, and the 

                                                 
306  An academic article shows that acquisition of new segments has significant effects on firm productivity.  Firms 

diversifying into a new segment experience a net reduction in productivity. While productivity of new plants 
increases, incumbent plants suffer.  See Antoinette Schoar, The Effect of Diversification on Firm Productivity, 
62 J. Fin. 2379-2403 (2002).  Another article shows that backlog orders can predict future earnings.  See Siva 
Rajgopal, Terry Shevlin, and Mohan Venkatachalam, Does the Market Fully Appreciate the Implications of 
Leading Indicators for Future Earnings? Evidence from Order Backlog, 8 Rev. Acct. Stud. 461-492 (2003).  
Based on these studies, one could anticipate that availability of material information on new segments and 
dollar amount of backlog orders believed to be firm could benefit investors. 



89 
 

principal parties involved.  Given that involvement in legal proceedings can affect a firm’s cash 

flows through multiple channels, including legal fees, the cost of executives being distracted 

from their main operational tasks, reputational costs, and settlement costs, information required 

under Item 103 is relevant to firm value.  Several studies also have found that the possibility of 

legal proceedings may affect corporate decisions, such as pricing of securities307 and 

management’s information dissemination.308  Therefore, investors might benefit if the proposal to 

update Item 103 results in more effective disclosure of material legal proceedings information. 

Currently, Item 103 and U.S. GAAP, which requires disclosure of certain loss 

contingencies, overlap in the requirement to disclose certain information associated with legal 

proceedings.  As a result, in order to comply with Item 103, registrants commonly repeat 

disclosures that are already provided elsewhere in registration statements and periodic reports.  

We propose to revise Item 103 to encourage the use of hyperlinks or cross-references to avoid 

repetitive disclosure.  If duplicative disclosure distracts investors from other important 

information, the proposal may benefit investors by reducing repetition and facilitating more 

efficient information processing.  However, to the extent that some information on legal 

proceedings would no longer be readily available under Item 103, investors may have to spend 

more time to retrieve the information through hyperlinks or cross-references.  However, we 

believe the increase in retrieval cost for investors would be minimal.  While registrants may 

                                                 
307  See Michelle Lowry and Susan Shu, Litigation Risk and IPO Underpricing, 65 J. Fin. Econ. 309–35 (2002)  

(finding that firms with higher litigation risk underprice their IPOs by a greater amount as a form of insurance, 
and underpricing by a greater amount lowers expected litigation costs). 

308  See Douglas J. Skinner, Why Firms Voluntarily Disclose Bad News?, 32 J. Acct. Res. 38-60 (1994) (suggesting 
that because shareholders are more likely to sue over earnings announcements with large negative returns, firms 
have an incentive to disclose bad earnings early in order to reduce the probability of being sued and the 
magnitude of damages).  See also Joel F. Houston, Chen Lin, Sibo Liu, and Lai Wei, Litigation Risk and 
Voluntary Disclosure: Evidence from Legal Changes, Account. Rev. (forthcoming 2019) (finding a positive 
relation between the expectation of litigation and voluntary disclosure and suggesting that earnings forecast 
strategies are often designed to deter litigation).   



90 
 

incur minimal compliance costs if they choose to include hyperlinks, we believe registrants 

would benefit from the proposal due to the potential reduction in costs to disclose duplicative 

information. 

Currently, Item 103 specifically requires disclosure of any proceedings under 

environmental laws to which a governmental authority is a party unless the registrant reasonably 

believes that the proceeding will result in monetary sanctions, exclusive of interest and costs, of 

less than $100,000.  This bright-line threshold for environmental proceedings was adopted in 

1982.  We propose to adjust the $100,000 threshold to $300,000 to account for the effects of 

inflation.  Some research has found that environmental liabilities can influence certain corporate 

decisions related to managing environmental regulatory risk309 and that some investors include 

environmental criteria in their investment strategies.310  Therefore, the disclosure of 

environmental proceedings at the appropriate level might benefit investors who have a particular 

interest in environmental matters.  The economic effects of increasing the disclosure threshold 

depend on investor preferences.  In other words, if investors do not use information about 

                                                 
309  See Dean Neu, Kathryn Pedwell, and Hussein Warsame, Managing Public Impressions: Environmental 

Disclosures in Annual Reports, 23 Acct. Org. & Soc’y 265-82 (1998) (using a matched-pair sample of publicly 
traded Canadian companies that have been subject to environmental fines and those that have not to analyze 
changes in pre-fine and post-fine environmental disclosure quality, and finding that environmental disclosure 
provides organizations with a method of managing potential discrediting events).  See also Xin Chang, 
Kangkang Fu, Tao Li, Lewis Tam, and George Wong, Corporate Environmental Liabilities and Capital 
Structure (2018), available at https://ssrn.com/abstract=3200991 (documenting that firms with higher 
environmental liabilities maintain lower financial leverage ratios and suggesting that environmental liabilities 
and financial liabilities are substitutionary). 

310  See Steve Schueth, Socially Responsible Investing in the United States, 43 J. Bus. Ethics 189-94 (2003) 
(providing an overview of the concept and practice of socially and environmentally responsible investing, 
describing the investment strategies practiced in the U.S., offering explanations for its growth, and examining 
who chooses to invest in a socially and environmentally responsible manner).  See also Laura Starks, Parth 
Venkat, and Qifei Zhu, Corporate ESG profiles and investor horizons (2017), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3049943 (finding that investors behave more patiently 
toward environmentally-responsible firms as they sell less after negative earnings surprises or poor stock 
returns).   However, investors may derive value from characteristics of investments that are unrelated to 
financial performance, and these studies do not directly address whether environmental disclosures provide 
material information to investors. 



91 
 

environmental proceedings that result in sanctions smaller than $300,000 to inform investment 

decisions, the proposal may benefit investors since elimination of disclosure that investors do not 

use may facilitate more efficient information processing.  If investors use such information, 

however, the proposal may have a cost to them.  Since the proposed threshold is higher than the 

current threshold, registrants should benefit from reduced compliance costs. 

   iv. Risk Factors (Item 105) 

Item 105 requires disclosure of the most significant factors that make an investment in 

the registrant or offering speculative or risky.  Some academic research supports the notion that 

information currently required under Item 105 is important to investors.  For example, there is 

evidence that risk factor disclosure by publicly traded firms is material in content.311  There also 

is evidence suggesting that investors benefit from risk-factor disclosures that are more specific.312  

In measuring long-run returns to IPO stocks, some studies conclude that the returns are 

commensurate with the risk profiles of the individual firms.313  Together, this research supports 

the notion that effective disclosures of risk factors can help investors better manage their risk 

exposure. 

                                                 
311  See John L. Campbell, Hsinchun Chen, Dan S. Dhaliwal, Hsin-min Lu, and Logan B. Steele, The information 

content of mandatory risk factor disclosures in corporate filings, 19 Rev. Acct. Stud. 396-455 (2014) (finding 
that the required disclosures of risk factors in Form 10-K filings affect market beta, stock return volatility, 
information asymmetry, and firm value, and that firms that face more risks disclose correspondingly more in the 
risk factor discussion). 

312  See Ole Kristian Hope, Danqi Hu and Hai Lu, The Benefits of Specific Risk-Factor Disclosures, 21 Rev. Acct. 
Stud. 1005-45 (2016) (finding that the market reaction to a Form 10-K filing is positively and significantly 
associated with specificity and suggesting that analysts are better able to assess fundamental risk when firms’ 
risk-factor disclosures are more specific). 

313  See Bjørn Eckbo and Øyvind Norli, Liquidity Risk, Leverage, and Long-Run IPO Returns, 11.  J. Corp. Fin. 1-
35 (2005) (constructing a portfolio of 6,000 IPO stocks and measure their returns in order to compare them with 
individual risk factors). The model for risk estimation includes several quantitative measures, as well as simple 
characteristic-based risks of the type disclosed in Forms S-1 and 10-K. The results indicate that the returns are 
likely fully justified by the increased risk of the IPO firms.  



92 
 

We propose to amend Item 105 to require summary risk factor disclosure in the forepart 

of the document when the risk factor section exceeds 15 pages.  If lengthy risk factor disclosure 

contains information that is less meaningful to investors, such as generic risks that could apply to 

any investment in securities, a summary of risk factors should benefit investors, especially those 

who have less time to review and analyze registrants’ disclosure, by enabling them to make more 

efficient investment decisions.  The proposed threshold could also incentivize registrants to limit 

the length of their risk factor disclosure to 15 pages.  Based on current disclosure practices, we 

estimate that a 15-page threshold would affect approximately 40 percent of registrants.314  In 

order to comply with the proposed amendments, registrants may incur additional costs to 

summarize or shorten their risk factor disclosure.  If registrants shorten their risk factor 

disclosure to avoid triggering the summary disclosure requirement, the disclosure might become 

less detailed.  However, registrants that are providing lengthy risk factor disclosure to reduce 

potential litigation risks might be less likely to shorten the disclosure simply to avoid this 

requirement.   

We propose to update Item 105 to replace the requirement to discuss the “most 

significant” risks with “material” risks.  The economic effects of the proposal depend on the 

preferences of investors.  If the existing “most significant” standard elicits too much or too little 

information, investors may benefit from the proposed materiality standard.  Focusing on the risks 

to which investors would attach the most importance should enable them to make more efficient 

                                                 
314  To estimate the percentage of registrants that would be affected by a 15-page threshold, we extracted all Forms 

S-1, S-3, S-4, S-11, 1-A, 10, and 10-K filed with the Commission during calendar year 2018.  This population 
consists of approximately 10,000 forms.  We then excluded Forms 10-K filed by smaller reporting companies 
and asset-backed issuers as well as Forms 10 filed by smaller reporting companies because they are not required 
to provide risk factor disclosure per Item 1A or Instruction J.  Next, we constructed a random sample of 100 
companies and calculated the length of their risk factor disclosure.  The resulting page distribution had the mean 
of 15.26 and median of 13.5 pages.  The 15-page threshold is around the 60th percentile of the distribution.  
Therefore, we estimate that this threshold would affect approximately 40 percent of registrants.   



93 
 

investment decisions.  Registrants may experience increased (decreased) compliance costs if the 

materiality standard results in more (less) expansive disclosure than the existing “most 

significant” standard. 

We propose to update Item 105 to require registrants to organize their risk factor 

disclosure under relevant headings, with generic risk factors, if disclosed, at the end of the 

section captioned as “General Risk Factors.”  Some academic research has found that different 

types of registrants disclose different types of risk factors and certain types of risk factors are 

more correlated with stock return volatilities and systematic risks.315  Therefore, well-organized 

risk factor disclosure that gives greater prominence to the most significant risks could benefit 

investors, especially those who have less time to review and analyze registrants’ disclosure, by 

enabling them to make more efficient investment decisions.  Registrants may incur additional 

costs to organize their risk factor disclosure. 

Overall, the proposed amendments to Item 105 may benefit investors if they result in 

disclosure that is more likely to be material and concise.  Registrants may incur additional costs 

to organize and summarize their risk factor disclosure.  To the extent that registrants shorten their 

risk factor disclosure to avoid triggering the summary disclosure requirement and investors 

valued the additional information, investors would incur costs associated with the loss of some 

information. 

C. Anticipated Effects on Efficiency, Competition, and Capital Formation 

As discussed above, the proposed amendments may improve capital allocation efficiency 

                                                 
315  See Ryan D. Israelsen, Tell It Like It Is: Disclosed Risks and Factor Portfolios (2014), available at 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2504522 (using textual analysis techniques to extract a 
broad set of disclosed risk factors from firms’ SEC filings to examines characteristics of the firms most likely to 
make each type of disclosure, and investigating the relation between firms’ risk disclosures and their stock 
return volatilities and factor loadings). 



94 
 

by enabling investors to make more efficient investment decisions.  For example, the proposed 

amendments may reduce search costs for certain investors by eliminating information that is not 

material to those investors.  Given that certain investors may have less time to review and 

analyze registrants’ disclosure,316 elimination of such information may facilitate more efficient 

investment decision making.  In addition, permitting issuers to omit disclosure of information 

when it is not material may reduce issuer compliance costs, allowing issuers to deploy resources 

towards more productive uses and thus encouraging capital formation.  The reduction in 

compliance costs might be particularly beneficial for smaller and younger issuers that are 

resource-constrained.317   

However, in cases in which issuers misjudge what information is material, a principles-

based disclosure framework relying on issuers’ determinations could result in increased 

information asymmetries between issuers and investors.  Such asymmetries may increase the 

cost of capital, reduce capital formation, and hamper efficient allocation of capital across 

companies.  Overall, to the extent that the proposed amendments would eliminate disclosure that 

is not considered to be material, we believe these effects would be limited.  Moreover, we would 

expect this risk to be offset by mitigants including accounting controls and the antifraud 

provisions of the securities laws. 

D. Alternatives 

We are proposing to revise Items 101(a), 101(c), and 105 to be more principles-based.  

                                                 
316  See David Hirshleifer and Siew Hong Teoh, Limited attention, information disclosure, and financial reporting, 

36 J. Acct. & Econ. 337−86 (2003) (developinging a theoretical model where investors have limited attention 
and processing power and  showing that, with partially attentive investors, the means of presenting information 
may have an impact on stock price reactions, misvaluation, long-run abnormal returns, and corporate decisions). 

317  We note, however, that, except for the elimination of the provision that requires smaller reporting companies to 
describe the development of their business during the last three years, smaller reporting companies that elect to 
provide the alternative business disclosure under Item 101(h) will continue to have mostly prescriptive 
requirements under the proposed amendments. 



95 
 

As an alternative to this proposal, we considered modifying these requirements using 

prescriptive standards.  A prescriptive standard could preserve the information investors 

currently receive while eliciting additional specific disclosures, may be easier to apply, and could 

enhance the comparability and verifiability of information.  For example, in response to previous 

requests for comment, commenters advocated for additional specific disclosures about 

environmental and foreign regulatory risks, the number and types of employees, and business 

strategy.  However, not all of these disclosures will be relevant at the same level of detail for all 

registrants.  Given that the optimal levels of disclosure for business description and risk factors, 

in particular, are likely to vary greatly across registrants, a more flexible principles-based 

approach should be more likely to elicit the appropriate disclosures for these items.  In addition, 

a prescriptive approach to a particular area of disclosure where the specified metric does not 

capture or does not fully capture the information likely to be material to an investment decision 

for a particular issuer or for comparable issuers may lead investors to rely on that metric for the 

issuer or as a comparative tool with respect to other issuers. 

We also are proposing to adjust for inflation the bright-line threshold for environmental 

proceedings in Item 103 from $100,000 to $300,000.  As an alternative to this proposal, we 

considered applying a materiality standard.  On the one hand, a materiality standard might elicit 

disclosure that is more relevant to a registrant’s operations.  For example, the same dollar 

amount of environmental fines might have a significant impact on cash flows of a small 

registrant but a trivial impact on cash flows of a large registrant.  On the other hand, the bright-

line threshold is easier to apply and could enhance comparability across registrants and over 

time.  Given that some environmental proceedings can be factually and legally complex, a 

bright-line threshold provides an easy-to-apply benchmark for registrants when determining 



96 
 

whether a particular environmental proceeding should be disclosed.  Another alternative is to 

adopt a lower or higher bright-line threshold than the one proposed.  The optimal threshold 

depends on the preference of investors.  For example, a lower bright-line threshold might be 

more appropriate if investors use information about environmental proceedings smaller than 

$300,000 to inform investment decisions. 

As another alternative, we considered revising Form 20-F so that certain of the proposed 

amendments would also apply to foreign private issuers.318  For example, we considered making 

the business disclosure requirements under Form 20-F, which are largely prescriptive, more 

principles based as we have proposed to do for domestic registrants.  One advantage to similarly 

amending the business disclosure requirements under Form 20-F is that it would enable foreign 

registrants to realize the same expected benefits as domestic registrants by permitting them to 

tailor their disclosure to fit their own particular circumstances and reduce the amount of 

disclosure that is not material.  However, this could reduce the ability of foreign private issuers 

to use a single disclosure document that would be accepted in multiple jurisdictions.319 

More particularly, similar to our rule proposal for registrants filing on domestic forms, 

we considered amending Form 20-F to include as a business disclosure topic human capital 

resources, including any human capital measures or objectives that management focuses on in 

managing the business, to the extent material to an understanding of the registrant’s business.  

Such an amendment could impose additional costs in the short run for foreign private issuers, to 

the extent that this disclosure is not required in other jurisdictions.  At the same time, investors 

                                                 
318  As previously explained, business disclosure for foreign private issuer registrants is governed by Part I of Form 

20-F, and not by Item 101 of Regulation S-K.  See supra note 23.  The Commission amended Form 20-F in 
1999 to conform in large part to the non-financial disclosure standards endorsed by IOSCO.  See supra note 190 
and accompanying text. 

319  See supra note 191 and accompanying text. 



97 
 

could benefit from any additional information elicited by the human capital topic. 

We also considered amending Item 101(h), which permits a smaller reporting company to 

provide the disclosure about its business development and description of its business pursuant to 

that Item as an alternative to Items 101(a) and (c).320  We considered amending the disclosure 

requirements of Item 101(h), which are largely prescriptive, to make them more principles-

based, similar to the approach proposed for Items 101(a) and (c).  Such an amendment would 

enable smaller reporting companies to tailor their business disclosure to fit their particular 

circumstances, which could help to eliminate information that is not material.  Smaller reporting 

companies with less established reporting histories, however, may be the most at risk of 

persistent information asymmetries if the principles-based approach results in loss of information 

material to investors.  As noted above, this risk would be offset by mitigants including 

accounting controls and antifraud provisions of the securities laws. 

E. Request for Comments  

In addition to the request for comments in Sections II and III of this release, we request 

comment on various aspects of the costs and benefits of our proposed amendments.  We request 

comment from the point of view of investors, registrants, and other market participants.  We are 

interested in comments on the analyses and conclusions of this Section and any effect the 

proposed amendments may have on efficiency, competition, and capital formation.  We also 

request comments on alternatives presented in this release as well as any additional alternatives 

to the proposed amendments that should be considered.  We appreciate any data or analysis that 

may help quantify the potential costs and benefits identified.  In particular, we appreciate any 

data or analyses that would help understand the effects of using a higher or lower quantitative 

                                                 
320  See supra note 80. 



98 
 

threshold for environmental proceedings.  In addition, if the proposed materiality standards in 

this release diminish comparability among registrants, we appreciate any data or analyses on the 

costs associated with the loss of such comparability. 

PAPERWORK REDUCTION ACT V. 

A. Summary of the Collections of Information 

Certain provisions of our rules, schedules, and forms that would be affected by the 

proposed amendments contain “collection of information” requirements within the meaning of 

the Paperwork Reduction Act of 1995 (“PRA”).321  The Commission is submitting the proposed 

amendments to the Office of Management and Budget (“OMB”) for review in accordance with 

the PRA.322  The hours and costs associated with preparing, filing, and sending the schedules and 

forms constitute reporting and cost burdens imposed by each collection of information.  An 

agency may not conduct or sponsor, and a person is not required to comply with, a collection of 

information unless it displays a currently valid OMB control number.  Compliance with the 

information collections is mandatory.  Responses to the information collections are not kept 

confidential and there is no mandatory retention period for the information disclosed.  The titles 

for the collections of information are:  

 “Regulation S-K” (OMB Control No. 3235-0071);323 

 “Form S-1” (OMB Control No. 3235-0065); 

“Form S-3” (OMB Control No. 3235-0073; 

“Form S-4” (OMB Control No. 3235-0324); 
                                                 
321  44 U.S.C. 3501 et seq. 

322  44 U.S.C. 3507(d) and 5 CFR 1320.11. 

323  The paperwork burden for Regulation S-K is imposed through the forms that are subject to the requirements in 
this regulation and is reflected in the analysis of those forms. To avoid a PRA inventory reflecting duplicative 
burdens and for administrative convenience, we assign a one-hour burden to Regulation S-K. 



99 
 

“Form S-11” (OMB Control No. 3235-0067); 

“Form F-1” (OMB Control No. 3235-0258); 

“Form F-3” (OMB Control No. 3235-0256); 

“Form F-4” (OMB Control No. 3235-0325); 

“Form SF-1” (OMB Control No. 3235-0707); 

“Form SF-3” (OMB Control No. 3235-0690); 

 “Form 10” (OMB Control No. 3235-0064); 

“Form 10-K” (OMB Control No. 3235-0063); 

“Form 10-Q” (OMB Control No. 3235-0070); 

“Schedule 14A” (OMB Control No. 3235-0059) 

We adopted all of the existing regulations, schedules, and forms pursuant to the 

Securities Act and the Exchange Act.  The regulations, schedules, and forms set forth the 

disclosure requirements for registration statements, periodic reports, and proxy and information 

statements filed by registrants to help investors make informed investment and voting decisions.   

A description of the proposed amendments, including the need for the information and its 

proposed use, as well as a description of the likely respondents, can be found in Section II above, 

and a discussion of the economic effects of the proposed amendments can be found in Section IV 

above. 

B. Summary of the Proposed Amendments’ Effects on the Collections of 
Information 

 
 The following table summarizes the estimated effects of the proposed amendments on the 

paperwork burdens associated with the affected forms listed in Section V.A. 

PRA Table 1.  Estimated Paperwork Burden Effects of the Proposed Amendments 
  

Proposed Amendments and Effects Affected Forms Estimated Net Effect* 
Item 101(a):   



100 
 

 
• More principles-based disclosure requirement, elimination 
of timeframe, and, for registration statements subsequent to 
the initial registration statement, requiring only an update 
with a hyperlink to the most recently filed disclosure that, 
together with the update, would present a complete 
discussion of the general development of a registrant’s 
business, would decrease the paperwork burden by reducing 
repetitive and immaterial information about a registrant’s 
business development.  Estimated burden decrease:  3 hours 
per form; and, for Schedule 14A, 0.3 hour per schedule.** 
 
• Addition of material changes to business strategy as a 
potential disclosure topic could increase the paperwork 
burden for some registrants, although such increase is 
expected to be minimal as many registrants already provide 
such disclosure.  Estimated burden increase: 1 hour per form; 
and, for Schedule 14A, 0.1 hour per schedule.** 
 

 
• Forms S-1, S-4, 10, 10-K 
 
 
• Schedule 14A 

 
• 2 hour net decrease in 
compliance burden per form 
 
• 0.2 hour net decrease in 
compliance burden per 
schedule 

Item 101(c): 
 
•  More principles-based disclosure requirement is expected 
to decrease the paperwork burden.  Estimated burden 
decrease:  3 hours per form; and, for Schedule 14A, 0.3 hour 
per schedule.** 
 
• Addition of human capital resources/measures and 
objectives as potential disclosure topic would likely increase 
the paperwork burden.  Estimated burden increase: 5 hours 
per form; and, for Schedule 14A, 0.5 hour per schedule.** 
 
• Addition of material government (and not just 
environmental) regulations as a potential disclosure topic 
could increase the paperwork burden for some registrants, 
although such increase is expected to be minimal as many 
registrants already provide such disclosure. Estimated 
burden increase: 1 hour per form; and, for Schedule 14A, 0. 
1 hour per schedule.** 

 
 
• Forms S-1, S-4, 10, 10-K 
 
 
• Schedule 14A 

 
 
• 3 hour net increase in 
compliance burden per form 
 
• 0.3 hour net increase in 
compliance burden per 
schedule 

Item 103: 
 
• Expressly providing for the use of hyperlinks or cross-
references is expected to decrease the paperwork burden by 
discouraging repetitive disclosure.  Estimated burden 
decrease: 1 hour per form/schedule. 
 
• Raising the disclosure threshold for governmental 
environmental proceedings could also decrease the 
paperwork burden by reducing disclosure of immaterial 
proceedings.  Estimated burden decrease:  2 hours per 
form/schedule. 

 
 
Forms S-1, S-4, S-11, 10,  
10-K, 10-Q, Schedule 14A 

 
 
3 hour net decrease in 
compliance burden per form / 
schedule 

Item 105: 
 
• Summary risk factor disclosure provision could increase 
the paperwork burden for some registrants, although such 
increase is expected to be minimal as the summary would 

 
 
• Forms S-1, S-3, S-4, F-1, 
F-3, F-4, SF-1, SF-3 
 

 
 
• 3 hour net decrease in  
compliance burden per form101 
 

consist of a bulleted list. Estimated burden increase:  1 hour 
per form, except no increase for Form S-11,*** and 0.67 
hour increase per form for Forms 10, 10-K, and 10-Q.± 

 
• Summary risk factor disclosure provision could decrease 
the paperwork burden for other registrants to extent that it 
incentivizes registrants to provide streamlined risk factor 
disclosure focusing on the most salient risks.  Estimated 
burden decrease:  4 hours per form, except no decrease for 
Form S-11,*** and 2.67 hour decrease per form for Forms 
10, 10-K, and 10-Q.± 
  
• “General Risk Factors” heading provision could marginally 
increase the paperwork burden.  Estimated burden increase: 
0.5 hour per form, except 0.33 hour increase per form for 
Forms 10, 10-K, and 10-Q.± 
 
• Substitution of “material” risks for “most significant” risks 
could marginally decrease the paperwork burden.  Estimated 
burden decrease:  0.5 hours per form, except 0.33 hour 
decrease per form for Forms 10, 10-K, and 10-Q.± 

• Form S-11 
 
 
• Forms 10, 10-K, 10-Q  

• no change in compliance 
burden 
 
• 2 hour net decrease in 
compliance burden per form 

 
Total 

 
• Forms S-1, S-4  
 
• Forms S-3, S-11, F-1, F-3, 
F-4, SF-1, SF-3 
 
• Form 10, 10-K 
 
• 10-Q 
 
• Schedule 14A 

 
• 5 hour net decrease per form 
   
• 3 hour net decrease per form 
 
 
• 4 hour net decrease per form 
 
• 5 hour net decrease per form 
 
• 2.9 hour net decrease per 
schedule 

*Estimated effect expressed as increase or decrease of burden hours on average and derived from staff review of 
samples of relevant sections of the affected forms. 
 
**The lower estimated average incremental burden for Schedule 14A reflects the Commission staff estimate that no 
more than 10% of the Schedule 14As filed annually include Item 101 disclosures. 
 
***Because Form S-11 already has a summary risk factor disclosure requirement, the proposed Item 105 
amendment is not expected to affect the compliance burden for Form S-11 registrants. 
 
 ± The reduced estimated average incremental burden for Forms 10, 10-K and 10-Q reflects the fact that smaller 
reporting companies, which comprise approximately one-third of the registrants filing those forms, are not required 
to provide Item 105 risk factor disclosure. 
 

C. Incremental and Aggregate Burden and Cost Estimates for the Proposed 
Amendments 

 
Below we estimate the incremental and aggregate reductions in paperwork burden as a 

result of the proposed amendments.  These estimates represent the average burden for all 



102 
 

registrants, both large and small.  In deriving our estimates, we recognize that the burdens will 

likely vary among individual registrants based on a number of factors, including the nature of 

their business.  We do not believe that the proposed amendments would change the frequency of 

responses to the existing collections of information; rather, we estimate that the proposed 

amendments would change only the burden per response. 

The burden reduction estimates were calculated by multiplying the estimated number of 

responses by the estimated average amount of time it would take a registrant to prepare and 

review disclosure required under the proposed amendments.  For purposes of the PRA, the 

burden is to be allocated between internal burden hours and outside professional costs.  The table 

below sets forth the percentage estimates we typically use for the burden allocation for each 

form.  We also estimate that the average cost of retaining outside professionals is $400 per 

hour.324 

PRA Table 2.  Standard Estimated Burden Allocation for Specified Forms and Schedules. 

Form / Schedule Type Internal Outside Professionals 

    Forms 10-K, 10-Q, Schedule 14A 75% 25% 

      Forms S-1, S-3, S-4, S-11, F-1,    
      F-3, F-4, SF-1, SF-3, and 10 

25% 75% 

 

 The table below illustrates the incremental change to the total annual compliance burden 

of affected forms, in hours and in costs, as a result of the proposed amendments. 

PRA Table 3.  Calculation of the Incremental Change in Burden Estimates of Current 
Responses Resulting from the Proposed Amendments 

  

                                                 
324  We recognize that the costs of retaining outside professionals may vary depending on the nature of the 

professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of 
$400 per hour.  This estimate is based on consultations with several registrants, law firms, and other persons 
who regularly assist registrants in preparing and filing reports with the Commission. 



103 
 

 
 The following table summarizes the requested paperwork burden, including the estimated 

total reporting burdens and costs, under the proposed amendments. 

PRA Table 4.  Requested Paperwork Burden under the Proposed Amendments 

                                                 
325  The number of estimated affected responses is based on the number of responses in the Commission’s current 

OMB PRA filing inventory.  The OMB PRA filing inventory represents a three-year average.  We do not expect 
that the proposed amendments will materially change the number of responses in the current OMB PRA filing 
inventory.   

326  The estimated reductions in Columns (C), (D) and (E) are rounded to the nearest whole number. 

327  From Column (D) in PRA Table 3. 

328  From Column (F) in PRA Table 3. 

Form Number of 
Estimated 
Affected 

Responses  
(A)325 

Burden 
Hour 

Reduction 
per 

Current 
Affected 
Response 

(B) 
 

Reduction in 
Burden Hours 

for Current 
Affected 

Responses 
(C) 

 
= (A) x (B)326 

 

Reduction in 
Company 
Hours for 
Current 
Affected 

Responses 
(D) 

 
= (C) x 0.25 or  

    0.75 

Reduction in 
Professional 

Hours for 
Current 
Affected 

Responses 
(E) 

 
= (C) x 0.75 or  

    0.25 

Reduction in 
Professional 

Costs for 
Current 
Affected 

Responses 
(F) 

 
= (E) x $400 

S-1         901 5        4,505         1,126         3,379   $1,351,600 
S-3      1,657 3        4,971         1,243         3,729   $1,491,600 
S-4         551 5        2,755            689         2,066      $826,400 
S-11           64    3           192              48            144        $57,600 
F-1           63 3           189              47            142            $56,800 
F-3         112 3           336              84            252      $100,800 
F-4           39 3           117              29              88        $35,200 
SF-1             6  3             18                5              14           $5,600 
SF-3           71 3           213                53            160        $64,000 
10         216 4           864              216                648      $259,200 
10-K      8,137 4      32,548       24,411         8,137   $3,254,800 
10-Q    22,907 5    114,535       85,901       28,634  $11,453,600 
Sch. 
14A 

     5,586        2.9      16,199       12,149         4,050   $1,620,000 

Total    40,310            126,001  $20,577,200 

  
Current Burden 

 

 
Program Change 

 
Requested Change in Burden 

Form Current 
Annual 

Responses 
(A) 

Current 
Burden 
Hours 

(B) 

Current Cost 
Burden 

(C) 

Number 
of 
Affected 
Responses 
(D) 

 

Reduction 
in 
Company 
Hours 
(E)327 

Reduction in 
Professional 

Costs 
(F)328 

Annual 
Responses 
 (G) = (A) 

Burden 
Hours 

(H) = (B)     
+ (E) 

Cost Burden 
  (I) = (C) + (F) 



104 
 

 
Request for Comment 

 Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order to: 

• Evaluate whether the proposed collections of information are necessary for the proper 

performance of the functions of the Commission, including whether the information will 

have practical utility; 

• Evaluate the accuracy and assumptions and estimates of the burden of the proposed 

collection of information; 

• Determine whether there are ways to enhance the quality, utility, and clarity of the 

information to be collected; 

• Evaluate whether there are ways to minimize the burden of the collection of information 

on those who respond, including through the use of automated collection techniques or 

other forms of information technology; and  

• Evaluate whether the proposed amendments would have any effects on any other 

collection of information not previously identified in this section. 

Any member of the public may direct to us any comments concerning the accuracy of 

these burden estimates and any suggestions for reducing these burdens.  Persons submitting 

 S-1       901      148,556    $182,048,700       901    1,126   $1,351,600       901      147,430    $180,697,100 
 S-3    1,657      193,730    $236,322,036    1,657    1,243   $1,491,600    1,657      192,487    $234,830,436 
 S-4       551      565,079    $678,291,204       551       689      $826,400       551      564,390    $677,464,804 
 S-11         64           12,290      $15,016,968         64            48        $57,600         64           12,242      $14,959,368 
 F-1         63        26,815      $32,445,300         63         47        $56,800         63        26,768      $32,388,500 
 F-3       112          4,448        $5,712,000       112         84      $100,800       112          4,364        $5,611,200 
 F-4         39        14,265      $17,106,000         39         29        $35,200         39        14,236      $17,070,800 
 SF-1           6          2,076        $2,491,200           6           5          $5,600           6          2,071        $2,485,600 
 SF-3         71        24,548      $29,457,900         71         53        $64,000         71        24,495      $29,393,900 
 10       216        12,072      $14,356,888       216       216          $259,200       216        12,018      $14,032,888 
 10-K    8,137 14,220,652 $1,898,891,869    8,137  24,411   $3,254,800    8,137 14,190,138 $1,894,823,469 
 10-Q  22,907   3,253,411    $432,290,354  22,907  85,901 $11,453,600  22,907   3,167,510    $420,836,754 
 Sch.            
14A 

   5,586      551,101      $73,480,012    5,586  12,149   $1,620,000    5,586      538,952      $72,362,812  

Total  40,310 15,775,632 $3,617,910,431  40,310 126,001 $20,577,200  40,310 18,897,101 $3,596,957,631 



105 
 

comments on the collection of information requirements should direct their comments to the 

Office of Management and Budget, Attention: Desk Officer for the U.S. Securities and Exchange 

Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and send a 

copy to, Vanessa A. Countryman, Secretary, U.S. Securities and Exchange Commission, 100 F 

Street NE, Washington, DC 20549-1090, with reference to File No. S7-11-19.  Requests for 

materials submitted to OMB by the Commission with regard to the collection of information 

should be in writing, refer to File No. S7-11-19 and be submitted to the U.S. Securities and 

Exchange Commission, Office of FOIA Services, 100 F Street NE, Washington DC 20549-2736. 

OMB is required to make a decision concerning the collection of information between 30 and 60 

days after publication of this proposed rule. Consequently, a comment to OMB is best assured of 

having its full effect if the OMB receives it within 30 days of publication. 

REGULATORY FLEXIBILITY ACT CERTIFICATION VI. 

When an agency issues a rulemaking proposal, the Regulatory Flexibility Act (“RFA”)329 

requires the agency to prepare and make available for public comment an Initial Regulatory 

Flexibility Analysis (“IRFA”) that will describe the impact of the proposed rule on small 

entities.330  Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an 

IRFA, if the proposed rulemaking is not expected to have a significant economic impact on a 

substantial number of small entities.331 

Although the rule proposal would have an impact on a substantial number of small 

                                                 
329  5 U.S.C. 601 et seq. 

330  5 U.S.C. 603(a). 

331  5 U.S.C. 605(b). 



106 
 

entities,332 the Commission expects that the impact on entities affected by the proposed rule 

would not be significant.333  The primary effects of the rule proposal would be to:  (1) increase 

the flexibility for an entity when providing disclosure regarding its business, including its general 

business development, so that it can tailor its disclosure to its particular circumstances; (2) 

eliminate or reduce disclosure about matters that are not material to an understanding of the 

business or to an entity’s legal proceedings; and (3) encourage risk factor disclosure that is 

shorter and concerns only material risks.  As a result of these effects, we expect that the impact 

of the rule proposal would be a reduction in the paperwork burden of affected entities, including 

small entities, and that the overall impact of the paperwork burden reduction would be modest 

and would be beneficial to small entities.334  Accordingly, the Commission hereby certifies, 

pursuant to 5 U.S.C. 605(b), that the proposed amendments to Items 101, 103, and 105 of 

Regulation S-K, if adopted, would not have a significant economic impact on a substantial 

number of small entities for purposes of the RFA. 

Request for Comment 

We request comment on this certification.  In particular, we solicit comment on the 

following:  Do commenters agree with the certification?  If not, please describe the nature of any 

impact of the proposed amendments on small entities and provide empirical data to illustrate the 

extent of the impact.  Such comments will be considered in the preparation of the final rules (and 

in a Final Regulatory Flexibility Analysis if one is needed) and, if the proposed rules are 

adopted, will be placed in the same public file as comments on the proposed rules themselves.   
                                                 
332  Approximately 2,283, or 33%, of the registrants filing on domestic forms in 2018 were small entities.  See supra 

Section IV.A.  

333  See Section IV.B. 

334  We estimate that the proposed amendments are likely to result in a net decrease of between three and five 
burden hours per form for purposes of the Paperwork Reduction Act.  See supra Section V.B. 



107 
 

SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT VII. 

For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 

(SBREFA),335 the Commission must advise OMB as to whether the proposed amendments 

constitute a “major” rule.  Under SBREFA, a rule is considered “major” where, if adopted, it 

results or is likely to result in: 

• An annual effect on the U.S. economy of $100 million or more (either in the form of an 

increase or a decrease); 

• A major increase in costs or prices for consumers or individual industries; or 

• Significant adverse effects on competition, investment, or innovation. 

We request comment on whether the proposed amendments would be a “major rule” for 

purposes of SBREFA.  In particular, we request comment on the potential effect of the proposed 

amendments on the U.S. economy on an annual basis; any potential increase in costs or prices for 

consumers or individual industries; and any potential effect on competition, investment or 

innovation.  Commenters are requested to provide empirical data and other factual support for 

their views to the extent possible. 

STATUTORY AUTHORITY AND TEXT OF PROPOSED RULE AND FORM VIII. 
AMENDMENTS 

The amendments contained in this release are being proposed under the authority set 

forth in Sections 7, 10, and 19(a) of the Securities Act, as amended, and Sections 3, 12, 13, 15, 

and 23(a) of the Exchange Act, as amended. 

List of Subjects in 17 CFR Parts 229, 239, and 240 

 Reporting and recordkeeping requirements, Securities. 

TEXT OF THE PROPOSED AMENDMENTS 
                                                 
335  5 U.S.C. 801 et seq. 



108 
 

In accordance with the foregoing, the Commission is proposing to amend title 17, chapter 

II of the Code of Federal Regulations as follows: 

PART 229 – STANDARD INSTRUCTIONS FOR FILING FORMS UNDER 
SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY 
POLICY AND CONSERVATION ACT OF 1975 – REGULATION S-K 

1. The authority citation for part 229 continues to read as follows: 
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25), 

77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 

78n, 78n-1, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-

37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 

124 Stat. 1904 (2010); and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012). 

2. Amend §229.101 by: 

a. Revising paragraphs (a) introductory text and (a)(1); 

b. Redesignating paragraph (a)(2) as paragraph (a)(3); 

c. Adding new paragraph (a)(2); and 

d. Revising paragraphs (c) and (h) introductory text. 

The revisions and addition read as follows: 

 
§229.101 (Item 101) Description of business. 

(a)  General development of business.  Describe the general development of the business 

of the registrant, its subsidiaries, and any predecessor(s). 

(1)  In describing developments, only information material to an understanding of the 

general development of the business is required.  Disclosure may include, but should not be 

limited to, the following topics:   

(i)  Transactions and events that affect or may affect the company’s operations, including 

material changes to a previously disclosed business strategy; 



109 
 

(ii)  Bankruptcy, receivership, or any similar proceeding; 

(iii)  The nature and effects of any material reclassification, merger or consolidation of 

the registrant or any of its significant subsidiaries; and 

(iv)  The acquisition or disposition of any material amount of assets otherwise than in the 

ordinary course of business. 

(2)  For filings other than initial registration statements, a full discussion of the general 

development of the registrant’s business is not required.  For such filings, an update to the 

general development of the business disclosure with a focus on material developments in the 

reporting period may be provided instead of a full discussion.  If a full discussion of the general 

development of the registrant’s business is not included, pursuant to § 230.411 or § 240.12b-23 

of this chapter as applicable, incorporate by reference, and include an active hyperlink to, the 

registrant’s most recently filed disclosure that, together with the update, would present the full 

discussion of the general development of its business. 

*  *  *  *  * 

(c) Description of business.  (1)  Describe the business done and intended to be done 

by the registrant and its subsidiaries, focusing upon the registrant’s dominant segment or each 

reportable segment about which financial information is presented in the financial statements.  

When describing each segment, include the information specified in paragraphs (c)(1)(i) through 

(v) of this section, to the extent such information is material to an understanding of the business 

taken as a whole. 

(i)  Revenue-generating activities, products and/or services, and any dependence on 

revenue-generating activities, key products, services, product families or customers, including 

governmental customers; 



110 
 

(ii)  Status of development efforts for new or enhanced products, trends in market 

demand and competitive conditions; 

(iii)  Resources material to a registrant’s business, such as: 

(A)  Sources and availability of raw materials; and 

(B)  The duration and effect of all patents, trademarks, licenses, franchises and 

concessions held; 

(iv)  A description of any material portion of the business that may be subject to 

renegotiation of profits or termination of contracts or subcontracts at the election of the 

Government; and 

(v)  The extent to which the business is or may be seasonal. 

 (2)  Discuss the information specified in paragraphs (c)(2)(i) and (ii) of this section with 

respect to, and to the extent material to an understanding of, the registrant’s business taken as a 

whole, except that, if the information is material to a particular segment, you should additionally 

identify that segment. 

(i)  The material effects that compliance with material government regulations, including 

environmental regulations, may have upon the capital expenditures, earnings and competitive 

position of the registrant and its subsidiaries.  Include in such disclosure material estimated 

capital expenditures for environmental control facilities for the current fiscal year and any other 

subsequent period that the registrant deems material; and 

(ii)  A description of the registrant’s human capital resources, including in such 

description any human capital measures or objectives that management focuses on in managing 

the business (such as, depending on the nature of the registrant’s business and workforce, 

measures or objectives that address the attraction, development, and retention of personnel). 



111 
 

*  *  *  *  * 

 (h)  Smaller reporting companies.  A smaller reporting company, as defined by 

§229.10(f)(1), may satisfy its obligations under this Item by describing the development of its 

business pursuant to this paragraph (h), except that, for filings other than initial registration 

statements, a smaller reporting company may provide an update to the general development of 

the business disclosure, instead of a full discussion, which complies with paragraph (a)(2) of this 

section.  If the smaller reporting company has not been in business for three years, give the same 

information for predecessor(s) of the smaller reporting company if there are any.  This business 

development description should include: 

* * * * * 

3.  Revise § 229.103 to read as follows: 
 

§229.103 (Item 103) Legal proceedings. 

(a)  Describe briefly any material pending legal proceedings, other than ordinary routine 

litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or 

of which any of their property is the subject.  Include the name of the court or agency in which 

the proceedings are pending, the date instituted, the principal parties thereto, a description of the 

factual basis alleged to underlie the proceedings and the relief sought.  Include similar 

information as to any such proceedings known to be contemplated by governmental authorities.  

Information may be provided by hyperlink or cross-reference to legal proceedings disclosure 

elsewhere in the document, such as in Management’s Discussion & Analysis (MD&A), Risk 

Factors and notes to the financial statements. 

 (b)  No information need be given under this section for proceedings: 

 (1)  That involve negligence or other claims or actions if the business ordinarily results in 



112 
 

such claims or actions, unless the claim or action departs from the normal kind of such claims or 

actions; or 

 (2)  That involve primarily a claim for damages if the amount involved, exclusive of 

interest and costs, does not exceed 10 percent of the current assets of the registrant and its 

subsidiaries on a consolidated basis.  However, if any proceeding presents in large degree the 

same legal or factual issues as other proceedings pending or known to be contemplated, the 

amount involved in such other proceedings shall be included in computing such percentage. 

 (c)  Notwithstanding paragraph (b) of this section, disclosure under this section shall 

include, but shall not be limited to: 

 (1)  Any material bankruptcy, receivership, or similar proceeding with respect to the 

registrant or any of its significant subsidiaries; 

 (2)  Any material proceedings to which any director, officer or affiliate of the registrant, 

any owner of record or beneficially of more than five percent of any class of voting securities of 

the registrant, or any associate of any such director, officer, affiliate of the registrant, or security 

holder is a party adverse to the registrant or any of its subsidiaries or has a material interest 

adverse to the registrant or any of its subsidiaries; 

 (3)  Administrative or judicial proceedings (including proceedings which present in large 

degree the same issues) arising under any Federal, State, or local provisions that have been 

enacted or adopted regulating the discharge of materials into the environment or primarily for the 

purpose of protecting the environment.  Such proceedings shall not be deemed “ordinary routine 

litigation incidental to the business” and shall be described if: 

 (i)  Such proceeding is material to the business or financial condition of the registrant; 

 (ii)  Such proceeding involves primarily a claim for damages, or involves potential 



113 
 

monetary sanctions, capital expenditures, deferred charges or charges to income and the amount 

involved, exclusive of interest and costs, exceeds 10 percent of the current assets of the registrant 

and its subsidiaries on a consolidated basis; or 

 (iii)  A governmental authority is a party to such proceeding and such proceeding 

involves potential monetary sanctions, unless the registrant reasonably believes that such 

proceeding will result in no monetary sanctions, or in monetary sanctions, exclusive of interest 

and costs, of less than $300,000; provided, however, that such proceedings which are similar in 

nature may be grouped and described generically. 

4.  Revise § 229.105 to read as follows: 

§ 229.105 (Item 105) Risk factors. 

(a)  Where appropriate, provide under the caption “Risk Factors” a discussion of the 

material factors that make an investment in the registrant or offering speculative or risky.  This 

discussion must be organized logically with relevant headings and each risk factor should be set 

forth under a subcaption that adequately describes the risk.  The presentation of risks that could 

apply generically to any registrant or any offering is discouraged, but to the extent generic risk 

factors are presented, disclose them at the end of the risk factor section under the caption 

“General Risk Factors.” 

(b)  Concisely explain how each risk affects the registrant or the securities being offered.  

If the discussion is longer than 15 pages, include in the forefront of the prospectus or annual 

report, as applicable, a series of short, concise, bulleted or numbered statements summarizing the 

principal factors that make an investment in the registrant or offering speculative or risky.  If the 

risk factor discussion is included in a registration statement, it must immediately follow the 

summary section.  If you do not include a summary section, the risk factor section must 



114 
 

immediately follow the cover page of the prospectus or the pricing information section that 

immediately follows the cover page.  Pricing information means price and price-related 

information that you may omit from the prospectus in an effective registration statement based 

on Rule 430A (§ 230.430A of this chapter).  The registrant must furnish this information in plain 

English.  See § 230.421(d) of Regulation C of this chapter.   

PART 239 – FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933 

 5.  The authority citation for part 239 continues to read as follows: 

 Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77sss, 78c, 78l, 

78m,78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 

80a-13, 80a-24, 80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat. 

312, unless otherwise noted. 

* * * * * 

 6.  Amend Form S-4 (referenced in § 239.25) by revising paragraph (b)(3)(i) of Item 12 

under Part I, Section B (“Information About the Registrant”) to read as follows: 

 Note:  The text of Form S-4 does not, and this amendment will not, appear in the Code 

of Federal Regulations. 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM S-4 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 

* * * * * 

PART I 

INFORMATION REQUIRED IN THE PROSPECTUS 



115 
 

* * * * * 

B.  INFORMATION ABOUT THE REGISTRANT 

* * * * * 

Item 12.  Information with Respect to S-3 Registrants. 

* * * * * 

(b) * * * 

 (3)  Furnish the information required by the following:  

 (i) Item 101(c)(1)(i) of Regulation S-K (§ 229.101(c)(1)(i) of this chapter), industry 

segments, key products or services; 

* * * * *  

PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE 
ACT OF 1934 
 
 7.  The authority citation for part 240 continues to read as follows: 

 Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 

77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 

78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 

80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq.; and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 

18 U.S.C. 1350; and Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602, Pub. 

L. 112-106, 126 Stat. 326 (2012), unless otherwise noted. 

* * * * * 

 8.  Amend § 240.14a-101 by revising paragraph (a) of Item 7 of Schedule 14A to read as 

follows: 

§ 240.14a-101   Schedule 14A. Information required in proxy statement. 

* * * * * 



116 
 

Item 7. Directors and executive officers.  * * * 

 (a)  The information required by Item 103(c)(2) of Regulation S-K (§229.103(c)(2) of 

this chapter) with respect to directors and executive officers. 

* * * * * 

 

By the Commission.  

Dated:  August 8, 2019. 

 

 

Vanessa A. Countryman, 

Secretary.