SEC Harmonizes and Improves “Patchwork” Exempt Offering Framework
November 18th | 2020
The SEC today voted to amend its rules in order to harmonize, simplify, and improve the exempt offering framework, which is known for its complexity. A core concept of the federal regulatory regime is the requirement that all securities offerings be registered with the SEC or qualify for an exemption from registration. The registration process generally is designed for larger companies with substantial resources.
As a result, many entrepreneurs and emerging businesses raise capital by selling securities in reliance on an offering exemption. “For many small and medium-sized business, our exempt offering framework is the only viable channel for raising capital. These businesses and their prospective investors must navigate a system of multiple exemptions and safe harbors, each with different requirements,” said Chairman Jay Clayton.
In general, the amendments:
Establish more clearly, in one broadly applicable rule, the ability of issuers to move from one exemption to another;
increase the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings, and revise certain individual investment limits;
set clear and consistent rules governing certain offering communications, including permitting certain “test-the-waters” and “demo day” activities; and
harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions.
One notable aspect of these amendments is that the Commission raised the current offering and investment limits for certain exemptions:
For Regulation A, the amendments:
raise the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million; and
raise the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million.
For Regulation Crowdfunding, the amendments:
raise the offering limit in Regulation Crowdfunding from $1.07 million to $5 million;
For Rule 504 of Regulation D, the amendments:
raise the maximum offering amount from $5 million to $10 million.
The amendments will be effective 60 days after publication in the Federal Register, except for the extension of the temporary Regulation Crowdfunding provisions, which will be effective upon publication in the Federal Register. Helpfully, the Commission’s press release has included a reference chart with an overview of the amended capital raising exemptions.