The traditional architecture of U.S. securities law separated three linked categories on each side of a legal boundary: public companies, public capital, and public markets on one side, and private companies, private capital, and private markets on the other. The public realm was highly regulated. Firms that entered it generally made registered offerings or listed securities, provided periodic and current reports, complied with proxy rules, and adopted specified governance and control structures. The private realm was lightly regulated because private offerings were historically small, made to a limited number of sophisticated investors, and conducted without general solicitation, so that the public benefits of regulation were considered too remote. The architecture worked because the categories largely aligned. Mainstream investors generally obtained exposure through public markets, while private capital came from a narrower group of professional or sophisticated investors. The divide has always been imperfect and somewhat undertheorized; it is best understood as a conceptual device for making sense of the original design of securities law. Its present difficulty is that the categories no longer align reliably: private firms can obtain enormous amounts of capital, and capital supplied by mainstream investors can reach private firms through intermediaries.

The three terms describe different dimensions. A public company is an issuer subject to the federal reporting regime, usually because it has completed a registered offering or listed equity on a national securities exchange. Public capital, as used here, is capital raised or traded on the public markets or supplied by investors not subject to qualification restrictions, including mainstream investors and registered investment pools. Public markets are trading and offering environments characterized by registration, public disclosure, price discovery, and comparatively high liquidity. The private counterparts are defined by exemptions from registration, restricted trading, limited disclosure, and capital historically supplied by venture capital, private equity, and other sophisticated investors. The distinction matters because the three dimensions have become decoupled. A public company can raise money in a private placement. A private company can receive capital from mutual funds, retirement oriented vehicles, insurers, or other institutions whose beneficiaries are ordinary investors. Private securities can therefore enter portfolios that investors may regard as public market portfolios. Once company status, capital source, and trading venue no longer travel together, the public–private distinction loses much of its descriptive and explanatory power as an organizing principle of securities law.

The Securities Act of 1933 is primarily transaction based. It generally requires registration of an offering unless an exemption applies, and many exemptions turn on the size or manner of the offering and the characteristics of the investors. Regulation D, for example, relies heavily on the accredited investor concept and permits substantial capital raising outside the registered public offering process. The Securities Exchange Act of 1934 is primarily issuer based. It creates ongoing reporting obligations for companies whose securities are listed under Section 12(b), whose securities cross the registration thresholds in Section 12(g), or whose registered offerings generate reporting duties under Section 15(d). These statutes therefore draw related but different lines. The Securities Act asks whether a particular capital raising transaction must be registered and focuses on investor qualification; the Exchange Act asks whether an issuer must enter an ongoing disclosure regime and focuses on the issuer’s funding choices and size. The JOBS Act introduced further inconsistency by importing accredited investor status into Section 12(g), although, because Section 12(g) has become largely irrelevant, the change is more symbolic than practical. As a result of the expanded exemptions, a firm can conduct multiple exempt offerings to a large investor base while remaining outside the full periodic reporting system.

“Public company” has a popular meaning, denoting a firm with publicly traded stock, dispersed shareholders, and a sizeable balance sheet and workforce, and a technical meaning: a legal status carrying a package of disclosure, governance, audit, and liability consequences. In the technical sense, the category is constructed by law, including federal legislation, SEC rules and enforcement practices, stock exchange listing standards, and judicial decisions. A company commonly enters the category by selling securities in a registered public offering or listing a class of securities on a national exchange. Once inside, it generally files annual, quarterly, and current reports; complies with proxy regulation; maintains disclosure controls and internal control over financial reporting; and follows governance requirements involving independent directors and board committees. The category is internally heterogeneous. Emerging growth companies, smaller reporting companies, foreign private issuers, and some Section 15(d) reporters receive different forms of scaled or modified treatment. Still, the category performs a major institutional function: it determines which business entities become the principal subjects of federal corporate governance regulation. The substantive content of regulation usually attracts the most attention, but the conduit is just as essential, which makes the category’s coverage as important as the rules attached to it.

A paradigmatic public company has equity securities listed on a national securities exchange under Section 12(b) of the Exchange Act and is subject to the full recurring federal reporting and proxy regime. It files annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. It complies with the proxy rules under Section 14, provides extensive executive compensation and governance disclosure, and follows exchange listing standards concerning board independence and committee structure. Sarbanes-Oxley adds requirements involving disclosure controls, internal control over financial reporting, executive certifications, and audit committee oversight. The paradigm matters because legislators drafting public company bills generally have this model in mind, and an investor with a diversified, market-weighted portfolio is exposed primarily to companies that fit it. Yet not every reporting issuer fits it. Emerging growth companies and smaller reporting companies receive scaled accommodations; foreign private issuers are subject to a subset of the domestic requirements; and some issuers report under Section 15(d) without being subject to the proxy rules. Most public companies, including the largest and most visible, fit the paradigm, and many that do not can be expected to grow into it over time.

Most firms become public companies only after taking affirmative steps to access public capital, usually through a registered offering or an exchange listing. Section 12(g) was designed to impose mandatory registration on sufficiently large and widely held firms, but its practical force has weakened. The JOBS Act raised the holder threshold to 2,000 holders of record, or 500 holders of record who are not accredited investors, for issuers with at least $10 million in assets, and excluded securities received under exempt employee compensation plans from the count. The record holder concept also fails to look through many intermediaries to the underlying beneficial owners. The SEC’s 2016 rules implementing the JOBS Act amendments retain those statutory thresholds. At the same time, large private financing rounds allow firms to grow without an initial public offering. The result is a form of issuer choice: firms can often choose between public financing with extensive regulation and private financing with much lighter regulation. Already public firms may also go private. Regulation consequently depends less on a firm’s economic footprint than on its financing path, even though the firm’s size, investor base, workforce, and societal footprint may be similar under either path.

The public company bargain describes the exchange implicit in going public. A firm receives access to broad, liquid, and historically indispensable public capital markets. In return, it accepts ongoing disclosure, audit, internal control, governance, and liability obligations. During much of the twentieth century, the bargain was difficult for an ambitious firm to refuse. Private markets were shallow, and securities law imposed tight limits on unregistered capital raising, so a firm seeking substantial growth capital generally had to enter the public realm. The modern bargain is different. Sarbanes-Oxley, Dodd-Frank, and related rules increased the obligations associated with public status, while the JOBS Act and other deregulatory measures expanded private financing. The benefits of public status remain important, including liquidity, a public acquisition currency, publicity and signaling benefits, and employee access to tradable equity. But access to large amounts of capital is no longer exclusive to public companies. As that exclusivity declines, firms can obtain much of the bargain’s principal benefit without accepting its regulatory price, weakening the state’s ability to use public company status as a dependable regulatory trigger.

Public company regulation serves both traditional securities law goals and broader economic governance goals. The traditional goals include investor protection, fair and efficient markets, competition, and capital formation. Investor protection itself can refer to preventing fraud, reducing informational asymmetries, preventing tunneling of resources by insiders, and protecting investors from irrational or harmful investment decisions. Capital formation is often invoked as a counterweight to investor protection, but the term does not specify whether policy should maximize capital raised in public markets, private markets, or both. Nor does it identify the socially optimal quantity or allocation of capital. Since Sarbanes-Oxley and Dodd-Frank, public company regulation has also advanced transparency, accountability, shareholder voice, and broader economic efficiency. Examples include board committee requirements, executive compensation votes, conflict minerals disclosure, and internal control mandates. These economic governance goals are not stated in the statutes and remain more controversial than the traditional goals. Whether one accepts all of these broader goals or only the traditional ones, the coverage problem remains the same: a regulatory regime cannot achieve its objectives consistently when economically significant firms can avoid the category by selecting private financing.

The original architecture aligned regulatory status, capital source, and investor type. Public companies raised most large scale equity financing in registered markets and supplied the securities held by mainstream investors. They were therefore subject to public disclosure, audit, proxy, and governance requirements. Private companies relied on a smaller pool of private capital and generally sold securities through exemptions designed for limited offerings and sophisticated investors. A growth company that needed substantial capital usually had to complete an initial public offering relatively early, and going public was largely a one way transition. The architecture also made the investor protection theory internally coherent. Investors thought unable to fend for themselves were directed toward the regulated public realm, while the lightly regulated private realm was reserved principally for investors presumed able to fend for themselves: institutions and, using income and net worth as proxies, wealthy individuals presumed less sensitive to losses. This arrangement was never perfect, but its categories generally reinforced one another. The later expansion of private financing and indirect retail exposure removed that alignment. Legal labels remained, while the economic relationships those labels were designed to describe changed substantially.

Two countervailing trends reshaped the system. First, federal regulation of public companies became deeper. Sarbanes-Oxley responded to the Enron and WorldCom era scandals with executive certifications, internal control requirements, and the Public Company Accounting Oversight Board. Dodd-Frank later added governance and disclosure requirements, including say on pay, clawbacks, and specialized disclosures. Second, capital raising became substantially more permissive outside the public markets. The over-regulation narrative surrounding Sarbanes-Oxley, later contradicted by empirical research, set off this deregulatory cascade. The JOBS Act, the FAST Act, SEC exempt offering reforms, and related policies expanded the amount of private capital available, broadened the investor base, and weakened mandatory registration triggers. The combined result was more public company regulation with a narrower practical reach. Firms could raise larger sums while private, stay private longer, and more easily move from public to private status. Public capital also began reaching private firms through institutional and pooled vehicles. The system thus shifted from two comparatively coherent realms toward a low friction system in which public capital flows to private companies, private capital is more abundant, and firms can effectively eschew public company status.

In Georgiev’s account, the deregulatory cascade is the cumulative series of legislative and regulatory changes that expanded private capital raising from the early 2000s through 2020, culminating in a long series of deregulatory measures between 2012 and 2020 that ended with the SEC’s November 2020 exempt offering amendments. The measures were technical and piecemeal, but they interacted and reinforced one another. The cascade operated along six overlapping dimensions: enabling the rise of unicorns; emphasizing private markets over public markets; enabling the dramatic rise of private equity; allowing public capital into private companies; transforming public capital into private capital; and promoting regulation-lite regimes such as emerging growth company status, smaller reporting company status, and Regulation A+. The JOBS Act was the central event, but later SEC and congressional actions, including the FAST Act of 2015, continued the process. The cascade was also self reinforcing. Concern that firms were avoiding or delaying initial public offerings produced further efforts to reduce regulatory burdens, yet some of those measures made private financing more attractive and reduced the need to go public. Not every individual development was problematic, and some were overdue, but the combination of sensible changes and changes hastily adopted to serve ideological goals made the cascade a negative development as a whole.

Sarbanes-Oxley was a genuine regulatory shock. Enacted in 2002 after major accounting scandals, it strengthened audit oversight, required executive certifications, imposed internal control obligations, and increased the compliance costs of public company status. It later became a scapegoat for a broader decline in initial public offerings and the number of listed firms. The timing made the causal story appealing: public company regulation increased while public listings declined. More careful empirical work, however, placed the decline in small company IPOs before Sarbanes-Oxley and attributed much of it to market forces, including institutional investor preferences and economies of scope favoring larger firms. The research showed that the overregulation narrative was not merely oversimplified but wrong, yet these findings never truly penetrated the policymaking community. The narrative shaped policy. It helped support the JOBS Act’s scaled disclosure and private offering reforms, which in turn made staying private easier. The 2026 filer status proposal again relies in part on the premise that lower compliance costs will cause more firms to go public or remain public. The supporting research is mixed and offers limited support for permanent relief to seasoned, midsized issuers.

The JOBS Act changed both sides of the regulatory boundary. In the public realm, it created emerging growth company status and provided newly public companies with scaled disclosure and other accommodations for up to five years. These included reduced executive compensation disclosure and a time-limited exemption from the Section 404(b) auditor attestation of internal control over financial reporting. In the private realm, the Act contained provisions on equity crowdfunding, amended various securities offering rules, and raised the Section 12(g) registration thresholds. It also excluded securities received under employee compensation plans from the holder count. These changes reduced the likelihood that a growing private company would be pushed into public reporting. The Act was presented as a response to an IPO problem and as a means of promoting capital formation. Yet by facilitating capital raising on the private markets, certain provisions decreased public capital formation, because firms gained additional ways to obtain capital without entering the public disclosure system. The enduring effect was broader than a temporary IPO on ramp: the Act helped make public company status a matter of issuer choice for a larger set of firms.

Section 12(g) was adopted in 1964 to require sufficiently large and widely held companies to register even if they had not chosen a public offering or exchange listing. As amended by the JOBS Act, it requires registration once a company has at least $10 million in total assets and a class of equity securities held of record by 2,000 or more persons, or by 500 or more persons who are not accredited investors, excluding holders who received securities under an employee compensation plan. More fundamentally, “held of record” often counts the bank, broker, or other intermediary appearing on the issuer’s records rather than the numerous beneficial owners behind that intermediary. The SEC has estimated that over 85% of holders of securities in U.S. markets hold through a broker-dealer or a bank. The SEC’s original 1964 proposal for Rule 12g5-1 contained a look-through provision, but the final rule did not require it. The higher thresholds, the employee exclusion, and technologies that deflate the count have rendered the provision essentially meaningless, a point reiterated in a July 2026 comment letter. In October 2021, SEC Commissioner Allison Herren Lee proposed redefining “shareholders of record” to reflect the actual investor base, a change the SEC could make under its existing authority.

The November 2020 amendments increased several exempt offering limits and loosened constraints on investor participation. The SEC raised the Regulation Crowdfunding offering limit from $1.07 million to $5 million in a twelve month period, doubled the Rule 504 limit from $5 million to $10 million, and raised the Regulation A Tier 2 limit from $50 million to $75 million. Accredited investors were also freed from Regulation Crowdfunding investment limits, while the calculation for nonaccredited investors became more permissive. The amendments affected both supply and demand. Issuers could raise more capital without a registered offering, and a broader range of investors could supply it. They were framed as harmonizing a patchwork of exemptions and expanding investor opportunity. In practice, however, the SEC retained the patchwork and merely increased the size of the constitutive exemption patches, adopting the amendments on a split 3–2 vote the day before the November 2020 election. Although the SEC raised offering limits, it did not raise the wealth thresholds in the accredited investor definition, which, unadjusted for inflation, had expanded the share of qualifying households from 2% to 13% since 1983. The amendments completed the deregulatory cascade, permitting larger and more frequent private offerings to be offered more widely to the general public.

The exemptions occupy different points between a traditional private placement and a fully registered public offering. Regulation D, especially Rule 506, supports most private capital raising. The expansion of exemptions under Rule 506 has made it easier for firms to attain scale solely on the basis of investment by accredited investors, and most private capital is raised under Rules 506(b) and 506(c). Regulation A+ enables firms to raise certain amounts of capital from public investors without becoming subject to public company regulation; since November 2020 its Tier 2 limit is $75 million. Regulation Crowdfunding, whose offering limit was raised to $5 million in a twelve month period in November 2020, permits offerings to the public subject to investment limits for nonaccredited investors. These pathways, along with the emerging growth company and smaller reporting company categories, show that public and private are no longer binary descriptions; the heterogeneity and complexity of the securities laws have expanded considerably. An offering may involve public investors or nonaccredited purchasers without turning the issuer into a paradigmatic public company. The resulting spectrum can facilitate capital raising, but it also fragments investor protection across the capital markets and weakens the public and private divide as an organizing concept.

Capital became functionally fungible as legal and institutional changes allowed money to cross boundaries that once separated public and private finance. Private companies can now raise very large sums from venture capital, private equity, and exempt offerings without completing an IPO. Public companies can use private placements, and they can be taken private by investment funds. Capital supplied by ordinary investors can reach private firms indirectly through mutual funds, defined contribution plans, and public pension plans. The source of the ultimate savings does not necessarily determine the legal status of the issuer receiving the money. The 2021 article’s two figures illustrate the change. Before the 2000s, public capital flowed mainly to public companies, private capital was comparatively limited, and the IPO was the principal bridge. By 2021, arrows ran among public capital, private capital, public companies, unicorns, and other private companies. What used to be hard regulatory prohibitions are now merely compliance items, so that for a firm determined to avoid public company regulation, the securities laws have become little more than transaction costs. Public markets now matter more for providing liquidity and adjusting the investor base than for raising new capital. The change gives firms greater financing flexibility, but it also permits them to obtain economically similar funding while selecting very different disclosure and governance obligations.

A unicorn is a private company with an implied valuation of at least $1 billion. The term was coined in 2013, when there were only 43 such firms in the United States; the category has since become commonplace, and by early December 2021 there were 473 unicorns with an aggregate implied valuation of $1.58 trillion. Its legal significance lies in the mismatch between economic scale and regulatory status. Unicorns look and behave like public companies in terms of market capitalization, number of employees, global reach, and potential for inflicting externalities, yet they remain outside public company disclosure, audit, proxy, and governance requirements. Unicorn status is a market label rather than a regulatory category; its significance is that the public company category no longer tracks firm size. This does not mean that every startup should be regulated like a mature public company, and regulatory constraints need not stymie start-up development. The concern arises when a mature private firm develops a substantial economic and societal footprint but its obligations still hinge on its capital raising choices. The SEC and Congress failed to anticipate the informational problems raised by unicorns, which quickly became governance problems, as the scandals at WeWork, Uber, and Theranos illustrate. Uber’s valuation during its unicorn days, as high as $69 billion, outranked most of America’s established public companies.

Companies can remain private longer because the private capital pool is larger, exempt offering pathways are more permissive, and mandatory registration triggers are easier to avoid. Venture capital and private equity funds can support repeated financing rounds at valuations once associated with public companies. Rule 506 permits substantial private placements, while Regulation A, Regulation Crowdfunding, and Rule 701 provide additional financing or compensation channels. The JOBS Act raised Section 12(g)’s record holder thresholds and excluded employee held securities, reducing the chance that growth itself will force registration. Intermediated ownership also allows numerous beneficial owners to be represented by relatively few holders of record. These changes matter because the need for capital historically pushed firms toward an IPO. Once comparable funding can be obtained privately, firms can delay the public disclosure and governance regime. The 2021 article reports that the median age of U.S. tech firms going public was 4 years in 1999 and 12 years in 2020, and that the average median age rose from 7.8 years in the pre-JOBS Act period (1980–2011) to 11 years in the post-JOBS Act period (2012–2020). The delay also shifts more of a company’s growth and governance development into a period when investors and employees receive less standardized information and public oversight than they would after an IPO.

No. The number of listed companies and the economic weight of the public company sector measure different things. At the start of 2023, the two major U.S. exchanges listed 4,618 domestic companies, down from a peak of 7,322 in 1996. Yet research by Mark Roe and Charles Wang, discussed in the 2023 article, found that the public firm sector had grown by every measure other than the number of firms. Public firms represented larger shares of profits, revenues, investment, and employment, and the remaining population was characterized by a “reconfiguration of the American public firm sector to one that is more profitable, more valuable, and with bigger but fewer firms.” The decline in firm count therefore reflects a reconfiguration rather than the disappearance of public companies from the economy. This distinction is important for policy. The 2026 filer status proposal notes that the firms remaining subject to full disclosure would still comprise the vast majority of U.S. public equity market capitalization, but the comment letter argues that market capitalization is not the correct metric, because it implies a portfolio-level approach to disclosure and materiality that the existing regulatory regime does not reflect. A firm count measure captures how widely full disclosure and governance obligations are distributed across operating enterprises.

The dated figures in the research document a rapid structural shift. When the term unicorn was coined in 2013, the United States had approximately 43 private firms valued at $1 billion or more. By the end of 2022, the number stood at 651, with an aggregate implied valuation of about $2.1 trillion. Between 2019 and 2022 alone, both the number of U.S. unicorns and their aggregate valuation roughly tripled. Private capital raising also surpassed public capital raising during the 2010s. For 2019, though data availability is imperfect, the SEC estimated approximately $1.5 trillion raised through Regulation D compared with approximately $1.2 trillion in the public markets. The rise of unicorns and the rise of private capital were mutually reinforcing and resulted from substantial deregulation: deeper private capital pools enabled firms to reach larger valuations without an IPO, and firms could remain private and unregulated for much longer. The figures are snapshots as of the dates given, but they show that billion dollar private firms and private financing had become central features of the capital markets by the early 2020s.

Private capital reduces the necessity of an IPO but does not eliminate its benefits. A public listing can provide liquidity for founders, employees, and early investors; create a publicly traded currency for acquisitions; replace one set of investors (venture capital and private equity funds) with another; allow a firm to return capital to existing investors by borrowing more efficiently on the public debt markets; and generate free publicity, which is of particular value to consumer facing businesses. Going public may also signal a firm’s maturity and the quality of its governance, functioning as a bonding mechanism that can lower the cost of capital. For employees paid partly in equity, public company stock is free of trading restrictions, has greater liquidity, and may command a premium over otherwise identical private company stock. As the research puts it, public markets are now more important for providing liquidity and adjusting the investor base than for raising new capital, and any IPO decision is unlikely to be driven by a single factor. Because private financing can postpone the decision, firms now conduct an IPO at a later and more mature stage: the median age of U.S. tech firms going public was 4 years in 1999 and 12 years in 2020, after a larger share of their growth and risk has occurred in private.

Fast growing private companies often use stock and stock options to save on salary expenses, manage liquidity, and align performance incentives. By the time a firm has a sizeable workforce or has existed for some time, its employees form a sizeable and often vocal group of stakeholders with a vested interest in the firm going public. Private company stock is subject to trading restrictions and is illiquid and hard to value. Public company stock is free of trading restrictions, has greater liquidity, and may command a premium over otherwise identical private company stock. The pressure grows where employees have waited years for a liquidity event, and where an employee who leaves must either forfeit unexercised options or pay the exercise price plus applicable taxes within a limited period after termination. The research cites employee demand for payouts as a factor that pushed Airbnb toward an IPO, while recognizing that no IPO decision is likely to be driven by a single factor. Employees at startups thus supply human capital and simultaneously invest financial capital through their compensation, and they cannot diversify away the firm specific risk attached to both. Delayed public status therefore concentrates employment risk and investment risk in the same enterprise.

The four companies provide a simple historical illustration of how much value creation can occur before a company enters the public markets. Amazon was founded in 1994 and went public in 1997, about three years later, with a market capitalization at IPO of approximately $661 million. Google was founded in 1998 and went public in 2004, about six years later, at approximately $30.5 billion. Facebook waited from 2004 to 2012 and entered the public markets at approximately $117.1 billion. Uber, founded in 2009, waited until 2019 and had a market capitalization at IPO of approximately $75.5 billion (all figures in 2019 dollars). The older generation of tech companies achieved the bulk of their present day market capitalization in the public markets: as of August 2020, virtually none of Amazon’s $1.3 trillion market capitalization had been raised in the private markets, compared with 3% of the value created by Alphabet/Google and 17% for Facebook. Uber’s implied private valuation, by contrast, was significantly higher than the total value created in its IPO. Earlier firms reached public investors while still relatively young, so that a greater share of growth occurred within the disclosure and governance regime. Today’s unicorns look and behave like public companies in market capitalization, headcount, and global reach before public investors receive the information and protections of public company status.

Georgiev’s research concludes that the over regulation narrative was not merely oversimplified but wrong. The decline in small company IPOs began in 1998, before Sarbanes-Oxley, even though that statute became the central target of the narrative. High quality empirical studies discussed in the research attribute the decline to a decrease in demand by institutional investors rather than to the cost of being a public company; to market forces independent of regulation, including increased M&A activity, greater availability of private capital, and changes in investment patterns; and to economies of scope that favor larger firms. Studies cited in the pending 2026 SEC proposal find that targeted JOBS Act accommodations affected IPO volume or timing, but the comment letter argues that on closer reading they offer very limited support for the propositions for which they are cited. The proposal itself cites research finding that regulatory costs explain only a small part of the decline in the number of public firms, yet rests materially on the premise that lower compliance costs will bring more companies public. Past measures adopted on that premise, beginning with the JOBS Act, did not increase the number of public companies; they decreased it by making it considerably easier for startups to raise private capital and grow without accessing the public markets.

Capital formation is undefined in the securities laws; in securities policy the term is usually used simply as a stand in for firms’ ability to raise capital, including at a lower cost. It entered the statutes in 1996 without elaboration, alongside efficiency and competition, and the SEC, Congress, and the policy community have since focused almost exclusively on it, often presenting it as a foil to investor protection. Allocative efficiency asks a different question: whether scarce capital flows to its most productive uses. From a total welfare point of view, allocative efficiency should be one goal of economic regulation, and unconstrained capital formation can be in direct conflict with it. The rise of private capital has led to very significant losses at firms such as Theranos, and many unicorns do not turn a profit; the diminished availability of information about private firms also has implications for allocative efficiency across the economy. Neither the statutory text nor the SEC’s conduct indicates whether the goal should be capital formation on the public or the private markets, or what the efficient level of capital formation is. The distinction also complicates claims that expanding investor access is beneficial: the rhetoric of investor opportunity is tied to a quest for higher returns, yet private markets, on average, do not outperform public markets.

The classic case for public markets over private markets rests on their advantages in price discovery, liquidity, and information quality. Public companies file audited financial statements, annual and quarterly reports, current reports on significant events, disclosure of material trends, risks, and legal proceedings, and governance information, and they must maintain and report on internal controls. Because disclosure is public, firms are also subject to scrutiny from the media, academics, public interest organizations, politicians, and others. Public trading produces observable prices, and public company stock is free of trading restrictions and more liquid than private company stock. Private markets are less liquid even in the best of times, produce no public disclosure, and, as the research notes citing Fried and Gordon, a market that makes it difficult and costly to express negative sentiments is prone to a bubble. Private markets are inferior in pricing: among companies going public between 2011 and 2019, about one third had a valuation below that implied by their final private financing round. Public markets are not perfectly efficient, and corporate transparency is not always guaranteed, particularly at the largest companies, where existing disclosure requirements may fall short. Because the price at which an investor buys or sells a security is the most important term in the transaction, price accuracy is itself a key element of investor protection.

Private market structure can make optimistic valuations easier to sustain. Securities trade infrequently, firms do not release information through a public reporting system, and it is difficult and costly for investors to express negative sentiments. The research relies on Jesse Fried and Jeffrey Gordon’s observation that structural features of private markets, particularly among Silicon Valley tech startups, contribute to both valuation and governance bubbles: a market that makes it difficult and costly to express negative sentiments is prone to a bubble and thus to an abrupt collapse when negative fundamentals finally become too pervasive to ignore. Private markets are also illiquid and incapable of serving as a disciplining mechanism for wayward founders and management. Governance failures at WeWork, Uber, and Theranos occurred despite the involvement of sophisticated venture capital and other institutional investors, and WeWork lost 80% of its value in a year and a half unwinding bad decisions that not even its largest shareholders knew about. The research does not claim that every private valuation is wrong; the point is that without a public listing, asset prices cannot be guaranteed to be accurate, because the mechanisms for testing and correcting valuation are weaker than in liquid public markets with standardized disclosure.

A 2020 Morgan Stanley report cited in the research observes that valuing young companies is an inherently tricky task and reports a 2020 survey of venture capitalists in which more than 90% of respondents believed unicorns were significantly overvalued, even though 40% had themselves invested in unicorns. The same report notes that, among companies going public between 2011 and 2019, about one third had a valuation below that implied by their final round of private financing. These findings do not establish that every unicorn is overvalued, but they show that sophisticated participation does not eliminate valuation uncertainty and that private round valuations can fail a subsequent public market test. The research makes a related observation about governance: failures at WeWork, Uber, and Theranos occurred despite the involvement of sophisticated venture capital and other institutional investors, who, contrary to what their incentives would suggest, did not bargain for information or exercise oversight effectively. Whether public company status would have prevented those scandals cannot be proven, but on balance, at least for large firms, public status appears more conducive to good governance. At the most basic level, accurate asset prices are key to investor protection, and without a public listing, asset prices cannot be guaranteed to be accurate.

In Georgiev’s account, fragmented investor protection describes a portfolio in which different holdings receive materially different legal protections even though the same mainstream investor ultimately bears the risk. Public company holdings benefit from periodic disclosure, audited financial statements, internal control requirements, proxy rules, exchange governance standards, and an elaborate enforcement regime. Private companies remain unregulated in these respects. When the diversified funds that hold most 401(k) retirement savings, insurers, or the largest asset managers hold both categories, investor protection varies asset by asset inside the portfolio. Public companies still comprise the largest share of a capitalization weighted diversified portfolio, but the private share is steadily increasing. The concept applies regardless of which theory of investor protection one adopts. If public company regulation is intended to protect investors from fraud, informational asymmetries, tunneling by insiders, or irrational or harmful decisions, exposing the same investors to unregulated private firms diminishes the overall level of protection within the portfolio. Because private company securities are finding their way into diversified funds, it would be very difficult, or at least burdensome, for an investor to exclude private companies even as a deliberate, informed strategy. Expanding investor opportunity should not come at the expense of overriding investor choice, but this may be one unintended consequence, and it is at best unclear that mixing public and private firms yields higher returns.

Ordinary investors need not purchase a private placement directly to acquire private company exposure. Mutual funds, large asset managers, and, following a 2020 Department of Labor rule change, defined contribution retirement plans can invest in private equity or in securities of private operating companies. A saver may therefore hold an interest in a diversified fund whose portfolio includes private securities, even though the saver could not have bought those securities on the same terms individually. The exposure can be several layers removed: retirement savings flow to a fund, the fund commits capital to a private equity vehicle, and that vehicle invests in private companies. The securities laws treat the fund as the investor, even though the capital originates with ordinary investors whom those laws were designed to protect. This arrangement can provide diversification and access to a wider opportunity set, but it also imports private market opacity, valuation uncertainty, and illiquidity into mainstream portfolios. Because fund holdings can change and private assets may not be easy to identify or exclude, the investor’s formal choice to buy a diversified retirement product does not necessarily represent an informed choice to accept the lower disclosure protections attached to each private company holding.

Expanded access creates additional investment possibilities, but additional possibilities do not guarantee higher risk adjusted returns. The research points to evidence that private markets, on average, did not outperform broad public market alternatives even for institutional investors. The track record of Regulation A+ IPOs had also been dismal as of the article’s writing. These findings should be interpreted carefully because private markets are inferior to public markets in pricing accuracy, so private asset valuations are themselves less reliable. Still, the evidence weakens the claim that reduced regulation is justified simply because private assets offer superior returns. Access can also impose costs that headline performance numbers omit, including illiquidity, valuation uncertainty, reduced firm-specific information, poor governance and monitoring, and greater difficulty diversifying effectively. The policy question is whether the regulatory protections, information, and portfolio design are appropriate for the investors who ultimately bear the risk. “Investor opportunity” is an incomplete rationale when expanding it comes at the expense of investor choice, that is, the ability to choose or avoid the associated exposure.

Employees at private companies often invest in two forms at once. They supply human capital through their labor, skills, and firm specific experience, and they acquire financial exposure through stock or options received as compensation. Both investments depend on the same company, creating concentrated risk that ordinary portfolio diversification cannot solve. If the firm fails, employees can lose their jobs and the value of their equity simultaneously. The securities are illiquid and hard to value, and the information employees need about the firm’s long-term prospects is not always made available to them, despite their daily dependence on the firm. They may face tax or exercise decisions before a reliable market price exists. Because startups can now raise unlimited private capital and remain private virtually indefinitely, these problems are no longer capped in size or duration, and larger private startups tend to have more employee-investors. As of December 2021, 112 U.S. unicorns had 1,000 or more employees, and, applying the rule of thumb that roughly 80% of startup employees receive stock options, hundreds of thousands of employees were exposed to their employers’ stock. Employee-investors also do not count toward the Section 12(g) registration thresholds. Georgiev treats them as a special class of investors, exposed to both the harms faced by a firm’s employees and the harms faced by a firm’s investors.

A private company employee may receive an option or share award with an estimated value but no active market in which to sell. Private company stock received as compensation is subject to trading restrictions and is illiquid and hard to value; public company stock, by contrast, is free of trading restrictions, has greater liquidity, and may command a premium over otherwise identical private company stock. An employee holding options must repeatedly make consequential decisions: whether to trade human capital for options, whether to remain employed to keep them or, on departure, forfeit them or pay the exercise price plus applicable taxes within a limited period, and whether to exercise before expiration. Each decision requires information about the firm’s long-term prospects that is not always made available to them. Private valuations are also unreliable. In a 2020 survey, more than 90% of venture capitalists believed unicorns were significantly overvalued, and between 2011 and 2019 about one third of companies going public had a valuation below that implied by their final private financing round. A public listing produces an observable market price and gives employees a much better sense of the value of their compensation. These features help explain why, by the time a firm has a sizeable workforce, its employees become a vocal constituency with a vested interest in an IPO.

The companies illustrate how startup governance arrangements can become problematic when a firm reaches public company scale without public company disciplines. Uber’s pre-IPO valuation reached approximately $69 billion while the company faced allegations involving harassment of employees, mistreatment of drivers, spying on customers, rough dealings with competitors, and deception of authorities. An internal investigation later recommended stronger board independence, an enhanced audit committee, internal controls, record keeping, and a robust internal complaint process, all features that mirror the SEC’s governance requirements for public companies. WeWork lost 80% of its value in about a year and a half unwinding a series of bad decisions that no one, not even its largest shareholders, knew about. Theranos produced very significant investor losses before the SEC charged its CEO with fraud. At each company, governance failures occurred despite the involvement of sophisticated venture capital and institutional investors, who did not bargain for information or exercise oversight effectively. These cases differ, and public companies also experience serious misconduct; whether public status would have prevented the scandals cannot be proven. The narrower lesson is that investors alone cannot be counted on to correct poor governance at big private companies. Public company regulation can operate as a regulatory speed bump, forcing information production and institutional review before problems grow further.

Regulatory capacity refers to the ability of a legal regime to reach the entities and conduct relevant to its goals. Federal policymakers frequently use public company disclosure and governance rules to promote investor protection, transparency, accountability, and other economic governance objectives. That strategy becomes less effective when firms can avoid public company status by relying on private capital, delaying an IPO, going private, or selling “bad” assets to a private company. The substantive rule may be well designed, yet its coverage can omit the firms to which the rule is most relevant. Climate related assets provide an illustration from the research: a public company can sell high polluting assets to a small private buyer, cleaning up the seller’s disclosed profile while the underlying activity continues with little public oversight. The same structural problem can arise with human capital, political spending, cybersecurity, or supply chain rules tied only to public issuers. The point concerns the regulatory conduit, not the merits of any particular mandate. As long as the public company category is elective, the federal government cannot use it to effectively and predictably regulate business activities it has deemed undesirable, because coverage depends on a financing choice increasingly detached from economic significance.

Sarbanes-Oxley and Dodd-Frank are often described as federalizing aspects of corporate governance traditionally governed by state law. They regulate audit committees, internal controls, executive compensation, shareholder voting, and related matters through federal securities law. The description is incomplete because the federal rules have always applied only to public companies. When firms can obtain abundant private capital and avoid or exit that status, federal governance rules do not operate across the economy. They apply to entities that have selected a particular financing path. Georgiev’s term “quasi-federalization” captures this limited reach. The federal government has created extensive governance obligations, but the subset of firms to which the federal layer applies is driven by private ordering rather than mandatory regulation, and the government has no means to force a firm into the regime. Relabeling federalization as quasi-federalization lowers both the stakes and the expected effectiveness of existing and future federal governance interventions. A mandate concerning board structure or disclosure may govern two economically similar firms differently because one lists securities and the other remains private. Firms can respond to federal governance obligations not only through compliance or state incorporation choices, but also by financing themselves privately, delaying an IPO, or going private.

Issuer choice describes a system in which firms can select among regulatory regimes by choosing how and where to raise capital. Academic proposals in the 1990s, most prominently Roberta Romano’s, openly debated whether firms should be able to choose among regulatory frameworks and decide whether to opt into securities regulation at all; the idea fell by the wayside after the dot-com crash and the accounting scandals of the early 2000s. The modern version arose differently. Congress and the SEC expanded private offering exemptions, private capital became abundant, Section 12(g) lost practical force, and public companies retained the ability to go private. Issuer choice was never mentioned in the debates over the JOBS Act and the deregulatory measures that followed; it emerged as the unintended result of piecemeal changes. A company can compare the benefits of public liquidity against the costs of reporting and governance, then remain private if the calculation favors secrecy and freedom from compliance. The choice is not costless, but it is far more realistic than it was in the twentieth century, when access to public capital was a prerequisite for growth. The state’s regulatory goals and the firm’s financing preferences are not the same. Allowing the regulated entity to choose whether core rules apply can undermine coverage, create arbitrage, and treat similar firms differently without a substantive justification.

The public company regulatory paradox arises when two firms that are economically alike face radically different federal obligations. Imagine two companies that are identical in virtually every respect: business model, size and scope of operations, enterprise value, access to capital, number of shareholders, and number of employees. The public company must provide regular public disclosure about its results of operations, financial condition, trends and risks affecting the business, executive compensation, and corporate governance arrangements. It must establish and maintain robust internal controls and procedures over financial reporting, have specially designated board committees with strict qualification requirements, and accept greater enforcement exposure. The private company must do none of that, simply because it has financed itself outside the public markets. The paradox has become more consequential as private markets have become just as abundant as public markets, allowing firms to reach public company scale without going public. Different treatment might be less problematic if investing in private companies were limited to private investors. It becomes harder to defend when an investor can invest with the same ease in both firms, and both are likely to be contained in the broadly diversified portfolios that are a staple of 401(k) plans. Public company status, in Georgiev’s assessment, no longer captures all the firms that it arguably should.

A universal rule of law principle holds that similar cases should be treated similarly; a framework that treats similar cases dissimilarly should be scrutinized and improved. Public company status once correlated with features such as dispersed ownership, mainstream investor participation, large scale capital raising, and economic significance. Private company growth has weakened those correlations. A large private company can resemble a listed company in nearly every respect while receiving much lighter treatment. Secrecy also has competitive value: Earlier work on materiality found that large firms able to avoid disclosing acquisitions, legal proceedings, and business projects gain an advantage over smaller public competitors that cannot, and that the disclosure regime may thereby distort product and capital markets. The elective category can also distort financing decisions, since the heavier the burden of public company regulation, the stronger the incentive to avoid the public company ecosystem. Investors face fragmented protection across economically similar assets, and government mandates fail to cover precisely the firms to which they are most relevant. The appropriate response need not be full uniformity. Regulation can be scaled to an entity’s economic and societal footprint, measured by employees, revenues, assets, or market capitalization, or tied to the relevant market rather than to capital raising. The problem is that the legal trigger, public company status, no longer tracks the policy goals the regulation is meant to serve.

Adverse selection can arise when the firms for which disclosure or oversight would be most valuable have the strongest incentives to avoid the regime. A firm whose activities or practices a mandate targets values secrecy more than a peer that the mandate does not bind. Because private capital is widely available, such a company can remain private, go private, or sell “bad” assets to a private company. The resulting public company population then fails to cover precisely the types of firms to which the rules are most relevant, even though the information is useful to investors, employees, customers, suppliers, and society at large. The 2026 comment letter applies this reasoning to voluntary internal control attestation under the SEC’s pending filer-status proposal: the firms most likely to discontinue attestation are those for which it binds most, an adverse-selection dynamic that leaves assurance weakest where it is most valuable.

A mandate tied to public company status applies only while the firm remains inside that category. A growing company can delay or avoid the mandate by financing itself privately and never going public. A listed company can go private or sell a business line to a private buyer. The regulatory objective may therefore be altered by transactions that change formal coverage without changing the underlying economic conduct. The research uses high emitting assets as an illustration. A public company facing climate disclosure and investor scrutiny can sell those assets to a smaller private operator. The seller cleans up its investor- and public-facing disclosure and frees capital, while the private buyer exploits the same assets with little public oversight and little reputational harm. The same avoidance opportunity applies to the many other subjects, such as human capital, supply chains, and political spending, that proposed legislation would route through the public company category. As long as the category is elective, the federal government cannot use it to regulate effectively and predictably the business activities it has deemed undesirable.

Georgiev has proposed that a five factor framework adapted from the administrative law literature on retrospective regulatory review provides a structured assessment. First, fidelity to statutory objectives asks whether the category still advances investor protection, capital formation, market efficiency, and any accepted economic governance goals. Second, changes in relevant conditions examine market and economic conditions, technology, social norms, and public risk tolerance. Third, the treatment of similar cases asks whether similarly situated public and private firms receive different treatment. Fourth, regulatory complexity asks whether the model produces rules of high complexity, as shown by poor compliance rates, the volume of guidance issued, or court remands. Fifth, regulatory divergence asks whether differences between the U.S. approach and those of key international trading partners call the model into question. The framework does not generate a mechanical answer. Financial regulation involves uncertain causation, difficult measurement, and contested goals, and case-by-case judgments remain open to debate. It does, however, force attention away from the category’s familiarity and toward its performance. A ninety year old regulatory choice is still a choice and should not be treated as self validating merely because institutions have organized around it.

The assessment provides substantial reason for skepticism. On fidelity to statutory objectives, mainstream investors increasingly obtain private company exposure without the protections that justify the public regime, while public status no longer captures all the firms relevant to market efficiency or economic governance. Relevant conditions have changed through the wider availability of private capital, the rise of unicorns, and longer times to IPO, among other structural changes. Similar cases receive different treatment when otherwise identical public and private firms face sharply different disclosure and control obligations, and investors can now hold both. Regulatory complexity has increased through the proliferation of offering exemptions and safe harbors and through sub-categories such as emerging growth and smaller reporting companies. International divergence is also visible because the United Kingdom and European Union use some size, activity, or public interest triggers that reach unlisted firms. There is serious cause for skepticism about the model’s effectiveness, both for the traditional goals of investor protection, capital formation, and market efficiency and for economic governance goals. Policymakers should identify the characteristics relevant to each intervention rather than default automatically to listed status.

Rebuilding the divide would restore a closer relationship among investor type, capital source, issuer obligations, and market protections, the ordered system in which public firms raised public capital from public investors on public markets and private firms raised private capital from a narrow class of qualified investors. One approach would regulate more activity in the private realm through targeted measures such as special disclosure regimes for unicorns, additional disclosure for employee-investors, whistleblower protections, stronger anti-fraud enforcement, and restrictions on trading absent adequate disclosure. Another would expand the public realm by changing the triggers that require Exchange Act registration, making it harder for a widely held or economically significant company to remain outside periodic reporting. Apart from the “shareholders of record” fix, expanding the public realm would require congressional action, which seems unlikely absent a crisis. Rebuilding also requires attention to transitions, international regulatory competition, and compliance costs; forcing large and medium-sized private companies into full public company regulation is a significant and costly step that could lead some to reincorporate abroad. Rather than endorsing a specific proposal, Georgiev argues that the SEC should initiate a broad deliberative process with multiple stakeholders to produce a blueprint for reform that returns securities law to a state of conceptual coherence.

The case rests on economic significance and investor exposure, not on hostility to private capital. A “move fast and break things” approach may be acceptable for a small startup, and private markets were once the domain of professional investors such as venture capital and private equity funds. Large, mature private companies present a different profile: billion dollar valuations, thousands of employees, heavily invested employees, and inclusion in the diversified funds that hold retirement savings. Yet investors and employees receive little standardized information about financial condition, risk, conflicts, compensation, controls, or governance. The Private Markets Transparency and Accountability Act, introduced in September 2022, offered one model by proposing SEC registration for private companies valued at $700 million or more (excluding affiliate holdings) or with at least 5,000 employees and $5 billion in revenue, after which they would report much of what public companies report. The bill was not enacted. Its rationale is that companies that look alike in size, investor profile, number of employees, and societal imprint should face the same transparency and accountability obligations whether private or public. It was acknowledged that implementation would not be straightforward, that the thresholds might need to be adjusted upward, and that the SEC might need to act on its existing authority if Congress did not.

The shareholders of record solution, proposed by SEC Commissioner Allison Herren Lee in an October 2021 speech, would update Section 12(g) so that its registration trigger reflects the actual investor base rather than only the names appearing on an issuer’s formal records. Current law generally requires registration when an issuer with more than $10 million in assets has equity held of record by at least 2,000 persons, or 500 persons who are not accredited investors. Because securities are held predominantly in street name through broker-dealers and banks, one record holder can represent many beneficial owners. Securities issued under exempt employee compensation plans are also excluded from the count. A look through method would count the underlying owners and push many, and possibly most, unicorns into periodic reporting. The SEC’s original 1964 proposal for Rule 12g5-1 contained a look through provision that the final rule omitted, and the SEC can act on its existing authority without new legislation. The drawbacks are significant: the change would be blunt, abrupt, and highly visible; the size of the investor base is an imperfect proxy for a firm’s societal footprint; and because the JOBS Act excludes employee-investors from the count, firms approaching the threshold might rely more heavily on employee capital, worsening the position of employee-investors. The proposal remains a reform option, not current law.

A footprint based approach would tie regulation to measures of an entity’s economic and societal significance rather than to public financing alone. Possible indicators include revenue, assets, number of employees, and market capitalization; a 2021 Duke Law report added private market valuation, beneficial owner count, public float on a private trading venue, and government contract revenue. Combining criteria can minimize avoidance opportunities, and regulation can be scaled in proportion to the footprint instead of switching all at once from private to public status. Such criteria could redefine the public company category or create a new one. The Accountable Capitalism Act, proposed in 2018, would have created a “large entity” category for any domestic entity in interstate commerce with more than $1 billion in annual gross receipts. The Private Markets Transparency and Accountability Act, proposed in 2022, would instead have redefined the public company category using valuation and employee plus revenue triggers. The U.K. Corporate Governance Code and the EU Corporate Sustainability Reporting Directive reach large unlisted firms on footprint criteria. The trigger can thus be matched to the substance and goals of the regulation. Calibration is the difficulty: thresholds set at low levels sweep in most of the economy, and aggregation rules may be needed to prevent avoidance by splintering entities.

A counterparty approach reaches an otherwise unregulated firm indirectly through the obligations of an entity that does fall within the regulator’s jurisdiction. A public company may be required to gather information from suppliers, contractors, or other counterparties in order to comply with its own disclosure duties, and it may impose specific conditions on those counterparties. The conflict minerals disclosure requirement provides an early example: although the rule applies only to public companies, a public company needs to know about its counterparties’ practices in order to report on the use in its supply chain of minerals originating in the Democratic Republic of Congo. Requiring public companies to report Scope 3 greenhouse gas emissions, or to report on independent contractors as part of human capital disclosure, would similarly expand the reach of what is ostensibly public company regulation and, with it, the regulatory boundaries of the firm. The EU’s draft supply chain due diligence directive offers an example of a comprehensive scheme that regulates firms and, indirectly, their counterparties. The approach can extend regulatory effects beyond the formal public company boundary without converting every counterparty into a reporting issuer. Georgiev describes it as somewhat controversial and worth consideration in specific circumstances, and presents it as an option rather than a recommendation.

A market specific approach regulates the market connected most directly to the policy problem instead of routing the intervention through public company securities law. If the objective concerns worker welfare, labor market rules can reach all employers, whereas an SEC disclosure mandate would reach only public companies; the FTC’s proposed ban on non-competes is Georgiev’s example. If the concern involves products or data, product market or data market regulation may offer a better trigger. Securities law became a convenient federal conduit because the federal government lacks a framework for regulating the internal affairs of business entities in a universal way, and public company regulation has filled that vacuum. A disclosure rule directed at public investors may reach only a subset of the firms responsible for the underlying conduct, and investor-focused disclosure is often inadequate for non-investor audiences. An economy dominated by intangible assets also reduces the relative importance of financial capital and capital markets vis-à-vis other markets. Direct regulation can cover conduct regardless of financing form, though it may be harder to adopt politically than a disclosure mandate, as with an outright conflict minerals prohibition. The appropriate choice depends on the substance and goals of the regulation, but public company status should not be the default hook for every economic governance concern.

An intermediary approach focuses not on companies but on the market intermediaries that stand between investors and private firms. If a regulator wishes to reach the private companies whose securities are contained in a fund marketed by an asset manager, it could impose reporting or other requirements on the asset manager. Such requirements could lead the asset manager to ensure compliance from the private companies in the fund so that it is itself in compliance. The European Union’s Sustainable Finance Disclosure Regulation takes this form: it requires intermediaries, namely investment funds and their managers, to collect and report sustainability information, and similar ideas have been mooted in the United States as a way to capture both public and private companies. The approach is relevant because public capital now reaches private companies through intermediaries. As of 2021, the SEC permitted mutual funds to invest up to 15% of their assets in private company stock, and a 2020 Department of Labor letter allowed defined contribution plans to offer private equity as an investment option. Georgiev presents the intermediary approach, alongside footprint based, counterparty, and market specific approaches, as an option worth exploring rather than a recommendation.

In Georgiev’s account, materiality blindspots arise when information is significant or sizeable in absolute terms but is not considered material relative to a very large company. The conventional materiality inquiry asks whether a reasonable investor would view the information as important in the context of the total mix of information about the issuer. As the firm grows, the threshold for what is material grows with it. A contract, lawsuit, acquisition, or capital project involving hundreds of millions or even billions of dollars may therefore fall below the issuer specific threshold even though the same matter would clearly require disclosure at a smaller company. The deficiency is structural, and the resulting omissions are lawful: a large firm can omit important information by applying the same materiality standard that is intended to prevent trivial disclosure. The research develops case studies involving Microsoft contracts, Berkshire Hathaway legal proceedings, and Google/Alphabet business spending to show how this can occur in practice. Blindspots can reduce price accuracy, weaken board and external monitoring, and leave diversified investors, whose market portfolios are disproportionately exposed to the largest firms, without information about objectively large risks and commitments concentrated in those firms.

The materiality standard can lower the effective disclosure rate as firm size increases. A smaller company may need to disclose a contract, project, lawsuit, or acquisition because the matter is large relative to its business. A much larger competitor can undertake an objectively larger matter without disclosure because it is small relative to the larger firm’s total mix. The larger firm then preserves secrecy and minimizes its interfirm costs of disclosure. Competitors, customers, and suppliers receive less information about its strategy, while the smaller firm must reveal comparable information and the larger firm benefits from that disclosure. The larger firm thus gains an advantage merely due to its size and its ability to avoid disclosure. Georgiev describes the result as a regulatory subsidy for bigness and develops a size neutrality criterion: deviations from size neutral treatment may be justified for small firms on capital formation grounds, but deviations that enable large firms to underdisclose are much harder to justify. The problem is especially important for diversified investors, whose market portfolios are dominated by the largest firms. Those firms have the greatest capacity to omit objectively significant matters, so the information deficit can affect a large share of investor wealth.

Quantitative thresholds can operate as a safety net beneath the general materiality standard. The proposal retains contextual materiality and supplements it in selected disclosure areas with an absolute dollar amount, periodically updated, that triggers disclosure without a prior materiality analysis, even when the matter might be immaterial relative to a very large issuer. Material contracts, legal proceedings, and major business spending, the areas examined in the case studies, are possible applications; an acquisition agreement above a specified amount, such as $1 billion, is one illustration. Because the threshold is expressed in dollars rather than as a percentage, the required amount of disclosure does not decline solely because the company becomes larger. The threshold must be calibrated carefully: it should be set where it captures important information but does not produce disclosure that is too voluminous. Thresholds should be reviewed and updated periodically to account for inflation and changing economic conditions. Materiality would continue to govern below the threshold. The combined approach preserves the flexibility of the principles based standard while addressing cases in which firm relative analysis permits objectively enormous matters to go undisclosed.

In May 2026, the SEC proposed replacing the current layered filer taxonomy with two principal categories: large accelerated filers and nonaccelerated filers. The proposal would raise the public float threshold for large accelerated filer status from $700 million to $2 billion, measured over two consecutive fiscal years, and generally require at least sixty months of Exchange Act reporting history before a company could enter that category. All other reporting companies would be nonaccelerated filers. The proposal would extend to that category virtually all of the scaled disclosure accommodations currently available to smaller reporting companies and emerging growth companies. It would also exempt all nonaccelerated filers from the auditor attestation requirement for internal control over financial reporting under Sarbanes-Oxley Section 404(b), and it would create a subgroup of the smallest nonaccelerated filers, defined by total assets of $35 million or less, eligible for longer filing deadlines. The Commission itself described the package as transformative. As of September 4, 2026, the SEC continues to list this initiative as a proposed rule; no final rule has been adopted.

The SEC’s own press release and proposing release describe the reforms as transformative, and the comment letter agrees with that characterization. The proposal uses changes in definitions to alter the substantive obligations of a large majority of reporting companies. Drawing on the data in the release, Georgiev’s comment letter reports that approximately 1,721 current large accelerated and accelerated filers would become nonaccelerated filers. About 1,386 of those firms currently receive neither smaller reporting company nor emerging growth company relief, while 335 receive some relief that would be expanded. The shift would reduce the population required to provide full, unscaled disclosure by approximately 60%. About 1,596 registrants would become newly exempt from Section 404(b) auditor attestation, reducing the attested population by approximately 58%. The category receiving scaled treatment would encompass about 81% of the analyzed domestic reporting population, although the remaining large accelerated filers would represent the vast majority of equity market capitalization. At the initial transition, the proposal would also reclassify some recently separated but very large operating companies because the sixty month clock would run from the new registrant’s own reporting history. Simplification alone does not justify these effects if it disconnects scaled treatment from the size and newness based rationales that have historically supported it.

Section 404(b) requires the outside auditor to attest to, and report on, management’s assessment of internal control over financial reporting. The 2026 proposal would remove that requirement for all companies outside the newly defined large accelerated filer category. Staff data in the SEC release, analyzed in the comment letter, show substantial differences across current filer categories. Over fiscal years 2021 through 2024, an average of 41.8% of nonaccelerated filers reported ineffective internal control under management’s Section 404(a) assessment, compared with 15.7% of accelerated filers and 5.2% of large accelerated filers. Persistent problems were also concentrated in the unattested category: 24.9% of nonaccelerated filers reported ineffective controls in four consecutive years, compared with 4.2% of accelerated filers and 0.4% of large accelerated filers. The release itself concedes that the attested tiers’ rates may underestimate the weaknesses that would exist absent attestation, because auditor involvement forces remediation before year-end reporting. Auditor testing can identify weaknesses, prompt remediation, and strengthen management and audit committee processes. Those governance effects are distinct from the informational value of the final attestation report. The comment letter concludes that the estimated savings of roughly $200,000 per registrant annually are modest relative to the size of the affected firms and cannot justify the assurance loss.

A threshold should reflect the reasons for scaled treatment and should remain stable in real terms. Departures from size neutral treatment are justifiable for genuinely small firms on capital formation grounds, but they are much harder to justify across a band that includes multibillion dollar enterprises. The proposed $2 billion public float threshold would extend permanent scaled treatment to the $700 million to $2 billion band of economically significant firms. The comment letter argues that the SEC’s own inflation based benchmark points to approximately $1.15 billion and that alternatives of $1 billion or $1.5 billion would preserve full disclosure for 334 or 139 additional registrants, respectively, while still covering more than 94% of aggregate market float. It recommends a threshold in the $1 billion to $1.5 billion range if the two category structure proceeds. Whatever level is chosen, periodic inflation indexing is critical, as the JOBS Act already provides for the emerging growth company revenue test. Non-indexing compounds silently: the accredited investor financial thresholds, static since 1983, expanded the qualifying share of U.S. households from roughly 2% to 13%, a deregulatory drift never deliberated as policy. Because single metric triggers decay as market structure evolves and invite avoidance at the margin, a composite test using float, revenue, or total assets, with aggregation rules, would be preferable to float alone.

Congress designed emerging growth company status as a temporary on ramp for newly public firms with specified exit conditions. The statutory framework includes an inflation indexed revenue ceiling, a maximum five year period, and automatic exit upon large accelerated filer status or $1 billion in non-convertible debt issuance. The design gives a new issuer time to establish standalone systems, controls, and reporting processes before it moves to full public company status. The 2026 proposal inverts that logic. It would extend virtually all of the accommodations associated with emerging growth companies to every nonaccelerated filer without the revenue cap, sunset, or statutory exit conditions. A seasoned company could therefore remain permanently in the scaled tier as long as it stayed below the new large accelerated filer test. That changes the rationale from a temporary IPO on ramp to an enduring division of the public company population. The studies the release cites examine the time limited on ramp for newly public companies; they do not support the distinct proposition that permanently extending scaled disclosure to seasoned midsized registrants would increase listings. The proposal would also render the limits Congress negotiated in the JOBS Act inoperative, since the indexed revenue cap, the sunset, and the exit triggers would all become dead letters.

The most consequential authority question concerns Section 404(b). Congress required auditor attestation in Sarbanes-Oxley and later enacted precise exemptions for smaller issuers and emerging growth companies. The SEC’s general exemptive powers under the Securities Act and Exchange Act do not reach Sarbanes-Oxley. The proposal would instead reach the result by redefining “accelerated filer” and “large accelerated filer,” terms incorporated into the statutory exemption in Section 404(c), which is captioned as an exemption for smaller issuers and was enacted alongside a directed study of companies with market capitalization between $75 million and $250 million. The comment letter argues that using a definitional delegation to move the effective boundary to $2 billion and remove attestation from roughly 60% of currently covered issuers requires a limiting principle and raises a major questions issue. Process and economic analysis concerns are separate. The release monetizes issuer savings but not investor costs from reduced disclosure, information asymmetries, and control failures, and the letter asks the SEC to compare them. Before adopting a recategorization of this magnitude, the SEC should also test how investors use the disclosures and attestation reports that would disappear, and evaluate the new category under retrospective review criteria such as fidelity to statutory objectives and consistent treatment of similar cases. As of September 2026, the proposal remains pending.

A retail investor can sometimes obtain economic exposure to a private AI company through an intermediary or investment product rather than by owning the company’s shares directly. For example, a publicly traded fund may hold interests in private companies. The investor owns the fund’s shares, while the underlying holdings contribute to the value of that investment.

Other structures require separate analysis. A special purpose vehicle (SPV) may hold private company shares, while a tokenized product or other contract may provide a contractual claim whose value depends on specified assets or outcomes. These structures are not interchangeable. An event contract about a particular company outcome, for example, is not equivalent to an equity interest in that company.

The description of a product does not establish that it is available to every retail investor. Eligibility, jurisdiction, offering restrictions, product terms, and the actual economic exposure need to be examined separately. A product marketed outside the United States, or limited to eligible investors, should not be described as generally available to U.S. retail investors. Nor should indirect or contractual exposure be described as ownership of the underlying company’s shares.

Applied to private AI companies, Georgiev’s research on the public–private divide directs attention to the distinction between an issuer’s regulatory status and the ways investors can gain economic exposure to it. The existence of an intermediary does not itself bring the underlying private issuer into the public company reporting system.

Retail access to a private AI company can create a disclosure gap when investors obtain economic exposure to the company without access to the standardized issuer information available for a public reporting company. The investor may bear risks tied to the private company’s valuation, performance, governance, financing, or prospects even though the company itself remains outside the Exchange Act reporting system.

An intermediary or investment product may have its own disclosure obligations. A publicly traded fund, for example, can provide information about the fund and its holdings without making each underlying private company a public reporting company. Disclosure about the investment product is therefore not necessarily equivalent to disclosure about the private issuer whose value contributes to the investment’s performance.

The same distinction warrants attention when evaluating an SPV, tokenized product, or contractual exposure. The relevant questions include what the investor actually owns, how the return is calculated, what information the intermediary receives, and what information reaches the investor. The size of any disclosure gap depends on those arrangements, not simply on the product’s label.

This is an application of a central theme in Georgiev’s research on the public–private divide: understanding investor protection requires attention to the economic substance of market participation as well as the legal distinction between public and private issuers.