On March 4th, the SEC proposed a series of amendments to improve crowdfunding regulations and the exempt offering framework. The proposal is aiming to promote capital formation and expand investment opportunities. Whether its raising seed capital or on the path to an initial public offering, a majority of entrepreneurs and emerging businesses raise capital using the exempt offering framework under the Securities Act. The proposed amendments will increase capital for issuers and access to investment opportunities for investors. Specifically, they proposed amendments to Regulation A+, Regulation Crowdfunding, and Regulation D 506(b), 506(c), and 504.
Regulation CF Amendments
The amendments to Regulation CF include increasing the offering limit in Crowdfunding from $1.07 million to $5 million. The SEC also plans to amend the investment limits for investors in Regulation Crowdfunding offerings by:
Removing investment limits for accredited investors
Modifying the calculation method for investment limits allowing them to rely more on their net income or net worth when calculating their investment limit
This will benefit online Reg CF crowdfunding platforms including Colonial Stock Transfer’s partner crowdfunding portals. If you are interested in conducting a Reg CF offering, please contact us.
Regulation A+ Amendments
The SEC is proposing to raise the maximum under Tier 2 of Regulation A from $50 million to $75 million. The amendment also includes increasing the maximum offering amount for secondary sales from $15 million to $22.5 million. This increase should entice more companies, public or private companies, to begin utilizing Reg A+ for their offerings. The SEC will also simplify certain requirements to provide more consistency between Reg A+ and registered offerings.
Regulation D Amendments
There are a few adjustments to Regulation D offerings as outlined below.
Reg D 506(b) Amendments: Financial information provided in offering documents to non-accredited investors in Rule 506(b) private placements will be changed to coincide with financial information disclosure requirements currently employed in Regulation A offerings.
Reg D 506(c) Amendments: Adding a new item to accredited investor verification methods.
Reg D 504 Amendments: The SEC is raising the maximum offering from $5 million to $10 million.
The SEC proposed two amendments relating to communications, such as:
“Test-the-Waters”- Permitting an issuer to use generic solicitation of interest materials to “test the waters” for an exempt offer of securities before selecting which exemption the company would use. It would also permit Reg CF issuers to “test the waters” before filing their Form C to the SEC similar to the Reg A offerings.
“Demo Day”- certain communications would not be defined as general solicitation or advertising.
New Safe Harbors
The SEC also proposed four new safe harbors from integration which are quoted below.
“ Any offering made more than 30 calendar days before the commencement of any other offering, or more than 30 calendar days after the termination or completion of any other offering, would not be integrated with another offering; provided that, for an exempt offering for which general solicitation is not permitted, the purchasers either were not solicited through the use of general solicitation, or established a substantive relationship with the issuer prior to the commencement of the offering for which general solicitation is not permitted”.
“Any offers and sales that are made in compliance with Rule 701, for an employee benefit plan, or in compliance with Regulation S would not be integrated with other offerings.”
“An offering for which a Securities Act registration statement has been filed would not be integrated with another offering if made subsequent to: (i) a terminated or completed offering for which general solicitation is not permitted; (ii) a terminated or completed offering for which general solicitation is permitted and made only to qualified institutional buyers and institutional accredited investors; or (iii) an offering that terminated or completed more than 30 calendar days prior to the commencement of the registered offering.”
“Offers and sales made in reliance on an exemption for which general solicitation is permitted would not be integrated with another offering if made subsequent to any prior terminated or completed offering.”
Other general improvements to the rules include:
Synchronizing existing bad actor disqualification provisions in Regulation D, Regulation A, and Regulation CF.
New eligibility restrictions in Reg A and Reg CF offerings are available. These would permit the use of special purpose vehicles to facilitate investing in Reg CF issuers and would limit the types of securities that can be offered in Reg CF offerings.
The comment period will be available for 60 days from the publication date on the Federal Register. To make comments, visit https://www.sec.gov/rules/proposed.shtml or send an email to firstname.lastname@example.org. Please include File Number S7-05-20 on the subject line.