The business world has changed a lot in the last three decades, and, as a result of recent amendments to Item 101 of Regulation S-K, the description of a company’s business included in registration statements and periodic reports will soon be catching up to some of those changes.  The amendments, which were approved by the SEC in a 3-2 vote on August 26, 2020, also make changes to Item 103, relating to legal proceedings, and Item 105, the risk factor disclosure requirement.

A brief summary of the key changes follows.

Item 101 Description of Business

• The current requirement to describe the company’s business is being revised to make it more principles-based and focused on disclosure of material items, with fewer required disclosures and fewer prompts for disclosure topics that might still warrant disclosure
• The current requirement relating to disclosure of the number of employees is being expanded to more generally address human capital measures and objectives that a company focuses on in managing its business
• The current disclosure requirement relating to environmental regulations is being expanded to address all material government regulations
• Other than in a company’s first registration statement, the company can elect to just update the full description of its business included in a single prior registration statement or report that is incorporated by reference using an active hyperlink 

Item 103 Legal Proceedings

• An express statement has been added confirming that companies can hyperlink or cross-reference to disclosures located elsewhere in the document (typically the notes to financial statements or risk factors) to avoid duplicative disclosure
• The dollar threshold for disclosure of environmental proceedings involving the government is being increased from $100,000 to at least $300,000.  A dollar threshold amount above $300,000, that is determined by the company and disclosed quarterly, may instead be applied if the selected dollar amount is reasonably designed to result in disclosure of material environmental proceedings and the threshold does not exceed the lesser of (x) $1 million or (y) one percent of the company’s consolidated current assets

Item 105 Risk Factors

• A company must include a bulleted or numbered summary of its principal risk factors, no longer than two pages in length, whenever the company’s risk factor disclosure exceeds 15 pages
• The SEC has clarified that risk factor disclosure should be of “material” (rather than the “most significant”) risks
• In addition to the subcaptions or headings already included at the beginning of each risk factor, the company will be required to group its risk factors under relevant headings
• The amendment discourages presentation of generic risks, but to the extent generic risks are provided they must be grouped together at the end under the caption “General Risk Factors”

The new rules are effective 30 days after publication in the Federal Register and apply as of that date.