Office of the Advocate for Small Business Capital Formation Response to COVID-19

SEC Small Business Capital Formation Advisory held a virtual meeting on April 2, to discuss the impact of Covid-19 on small businesses along with proposed and adopted relief measures. SEC Chairman Jay Clayton started the session with concern on preserving the capital during current times and referred to actions taken by the SEC to help businesses, including extended filing period and shareholder communication. Commissioner Hester Pierce repeated her earlier suggestion of allowing a new micro-offering exemption for quick access to capital with fewer restrictions and seemed to agree with the Committee members. Martha Legg Miller, Director of Small Business Capital Formation, thanked SEC for the adopted relief measures and talked about the availability of online resources for small businesses as well as encouraging one to one meetings and direct conversations to facilitate every business unit.

Here is a compilation of the proposed and amended relief measures for small business considering COVID19:

Exempt offering framework:

On March 4, 2020, the SEC proposed amendments to harmonize, simplify, and improve the exempt offering framework. Currently, there are ten exemptions or safe harbors, each with different requirements, which is complex and confusing, especially for entrepreneurs and emerging businesses. These proposed rule changes include:

  • increasing the maximum offering amount under Reg A, Reg CF and Reg D
  • amendments relating to offering “Test-the-Waters” and “Demo Day” Communications
  • eligibility restrictions Regulation Crowdfunding and Regulation A
  • integration of rules and commissions

Experts believe that the above rules, along with the proposed amendments to the accredited investor, are sure to bring a positive impact on the capital markets.

Compliance and Disclosure Interpretations (C & DI) on filing deadlines:

Division of Corporation Finance of the SEC released two additional C & DI on April 6 related to its earlier Order issued on March 25 to provide relief to the companies given COVID19. One is on Part III of Form 10-K, and the other is on the SEC’s MJDS for filers who use Form 40-F

Part III of Form 10-K:

General norm allows a company to include its Part III information in the Form 10-K in its subsequently filed proxy or information statement provided they are filed within 120 days of the end of the fiscal year. In case these are not filed by the 120th-day deadline, then an amended Form 10-K must be submitted by that date with the omitted information. Now the SEC has allowed a 45-day extension for Part III information for companies affected by the Covid-19 crisis if the deadline is within the relief period, which is between March 1, and July 1, 2020.

  • If the company already filed its annual report on Form 10-K without relying on the Covid-19 Order, it should furnish a Form 8-K with the disclosures required in the Order by the 120-day deadline. The company can then provide the Part III information within 45 days of the 120 days by including it in a Form 10-K/A or definitive proxy or information statement.
  • Covid-19 Order issued by the SEC allows a 45-day extension in the periodic filing. The company can apply for the extension by submitting a current report (Form 8-K or 6-K) disclosing why the relief is required, the material impact of Covid-19 on its business, and the estimated date by which it aims to file the report. The Form 8-K or 6-K must be submitted by the later of March 16 or the original reporting deadline.
  • If a company wants to appeal for both the Form 10-K and the Part III information to avail benefit issues in the SEC Order, it can do so by furnishing a single Form 8-K by the original deadline for the Form 10-K disclosing the required information asked in the Order. The Part III information must then be filed within 45 days following the 120 days.
  • A registrant who invoked the COVID-19 Order concerning Form 10-K by submitting Form 8-K but did not provide clarity on Part III information can do so through either of these:
    1. Include the Part III information in its Form 10-K filed within 45 days of the original Form 10-K deadline,
    2. Furnish a second Form 8-K with the disclosures by the initial 120-day period and then submit the Part III information within 45 days following the 120 days through Form 10-K/A or definitive proxy or information statement.

    Under Multijurisdictional Disclosure System (MJDS) if the filer relies on any Canadian COVID-19-related relief for extension of its Form 40-F filing deadline with the securities commission or equivalent regulatory authority, then it does not need to need to comply with the conditions for exemption relief in the SEC’s COVID-19 Order

    Click here to view online resources by the small business advisory committee

    Click here to view the Webcast

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