Bridge over ocean
29 October 2019 Issue Brief

Small Company Governance

Good governance of small companies is necessary to ensure that shareowners in these companies have the same rights and privileges as owners in larger companies.

The U.S. Jumpstart Our Business Startups Act (JOBS) Act exempts small companies, called emerging growth companies (EGCs), from many of the governance structures, disclosure requirements and shareowner rights provisions that exist under U.S. securities laws.


According to the US Jumpstart Our Business Startups Act (JOBS Act), small companies are exempt from the following:

  • Disclosure of pay versus performance;
  • Requirements for more than two years of audited financials in registration forms
  • Accounting rules that apply to firms other than private firms
  • Internal audit requirements
  • Auditor rotation requirements
  • Underwriter research restrictions (during and after an IPO)

CFA Institute Viewpoint

CFA Institute supports efforts to enhance small-company access to the capital markets for equity and debt funding. But we believe this goal should be balanced with the transparency needs of investors. CFA Institute believes the following safeguards are needed to balance the capital needs of small companies and the transparency and protections investors require:

  • Annual audits of companies included in annual reports
  • Use of Generally Accepted Accounting Principles (GAAP)
  • At least semi-annual updates on performance and condition
  • Public disclosure of all important company news
  • Liability of company principals who make fraudulent representations
  • Separate exchanges for companies subject to the Act’s exemptions
  • Shares sold through crowdfunding to remain unregistered

No Exemption for Small Companies

Small companies should have to abide by the same rules as large companies for permitting shareowners to nominate directors. Excluding small companies from such requirements may deny their shareowners the ability to exercise an important right to hold board members accountable, particularly when considering that small companies may have more corporate governance issues than larger entities. 

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