Earlier this week, the Securities and Exchange Commission announced that they are introducing amendments that will simplify the overly complex framework of the securities offering exemptions.
These changes are set to address gaps in the current exempt offering framework that hampers issuers' access to capital and investors' access to more investment opportunities.
The amendments were conceptualized last year and first introduced to the public in June 2019. The SEC then finalized the proposal last March 2020.
What’s to come?
In general, the amendments will allow issuers to move from one exemption to another while increasing the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings. Investment limits for investors have also been amended.
Investment limits for accredited investors have been removed while investment limits for non-accredited investors will now be determined by calculating whichever between their annual income or net worth is greater.
The changes will also set clear rules on certain offering communications, which includes permitting certain “test-the-waters” and “demo day” activities.
Certain disclosure and eligibility requirements, as well as bad actor disqualification provisions, have also become more integrated.
These changes are set to take effect 60 days after its publication in the Federal Register.
Positive impact for investors and founders
Vincent Petrescu, CEO of TruCrowd, Inc., has very optimistic thoughts about the amendments, especially for potential investors.
“These welcome developments for the businesses translate to more opportunities for investors,” he noted in his piece back in March. “There will be better deals to be presented to the investors. Mostly because the new rules will make this exemption more attractive for companies with more traction, with more robust management and process in place.”
SEC Chairman Jay Clayton pointed out the necessity for such amendments as the exempt offering framework has become the only viable channel for raising capital for many small businesses. Acknowledging the complexity of the previous set up, he noted the difficulty such businesses and their prospective investors must go through to comply.
“While each component in this patchwork system makes some sense in isolation, collectively, there is substantial room for improvement,” Clayton was quoted as saying. “The staff has identified various costly and unnecessary frictions and uncertainties and crafted amendments that address those inefficiencies in the context of a more rational framework that will facilitate capital formation for small and medium-sized businesses and benefit investors for years to come.”
Here’s a quick summary of amendments for Reg A+ and Reg CF Offerings:
In addition to the amendments, the existing temporary relief that gives issuers offering $250,000 or less of securities an exemption from certain Regulation Crowdfunding financial statement review requirements has also been extended for 18 months. This will take effect immediately upon publication in the Federal Register.