September 1, 2020

On August 26, 2020, for the first time in over 30 years, the Securities and Exchange Commission (the “SEC”) adopted significant amendments to the Regulation S-K disclosure requirements regarding the description of a reporting company’s business (Item 101), legal proceedings (Item 103) and risk factors (Item 105) (the “Amendments”). The Amendments represent the SEC’s latest efforts to modernize disclosure requirements by shifting to a more streamlined and principles-based approach.

SEC Chairman Jay Clayton noted especially the expansion of the Item 101 business description disclosures to include a description of human capital resources, stating, “I am particularly supportive of the increased focus on human capital disclosures, which for various industries and companies can be an important driver of long-term value.”

The Amendments generally revise disclosure obligations to implement, or expand upon, a principles-based approach. A summary of certain changes effected by the Amendments follows:

  • Item 101(a) – General Development of Business
    • The Amendments refocus Item 101(a) on disclosure of information material to the understanding of a reporting company’s business, rather than targeting specific items for disclosure.
    • Further, the Amendments streamline disclosure by replacing the previous requirement to describe the prior five years of the reporting company’s business in favor of a materiality framework, and permitting the company to provide only a general update of the material developments that have occurred since the company’s most recent discussion of the development of its business. The disclosures may include, in addition to other topics the company considers material:

      • any material changes to a previously disclosed business strategy;
      • the nature and effects of any material bankruptcy, receivership or any similar proceeding with respect to the company or any of its significant subsidiaries;
      • the nature and effects of any material reclassification, merger or consolidation of the company 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.


  • Item 101(c) – Narrative Description of Business
    • The Amendments reduce the existing list of twelve specific disclosure topics regarding the reporting company’s business to a more concise list of six topics based on the previous list, but expanded to include a description of any human capital resources material to an understanding of the reporting company’s business.
    • The Amendments also require disclosure of compliance with material government regulations generally, not just environmental laws.

  • Item 103 – Legal Proceedings
    • The Amendments amend Item 103 by increasing the current quantitative threshold for disclosing certain governmental environmental proceedings resulting in monetary sanctions from $100,000 to $300,000, while also allowing the reporting company to select a different quantitative threshold provided it is reasonably designed to result in disclosure of material environmental proceedings, up to the lesser of $1 million or one percent of the company’s current assets. If the company elects to use a different quantitative threshold, the threshold must be disclosed in each of the company’s annual and quarterly reports.
    • Reporting companies may also reduce duplicative disclosure of legal proceedings by hyperlinking or cross-referencing to disclosure located elsewhere in the disclosure document.

  • Item 105 – Risk Factors
    • The Amendments streamline Item 105 by requiring (i) a summary risk factor disclosure of no more than two pages if the reporting company’s risk factor section exceeds 15 pages and (ii) organization of risk factors under relevant headings (as many companies already do) in addition to the currently required subcaptions. 
    • Any risk factors generally relevant to an investment in securities disclosed under a separate caption at the end of the risk factor section entitled “General Risk Factors.”

“Building on our time-tested, principles-based disclosure framework, the rules we adopt today are rooted in materiality and seek to elicit information that will allow today’s investors to make more informed investment decisions,” said Chairman Clayton.

The Amendments will be effective 30 days after publishing in Federal Register.