SEC modernizes securities exempt offering framework

The SEC has issued rule amendments to simplify and harmonize requirements that disproportionately impact small and medium-sized businesses and entrepreneurs seeking exemptions to offerings under the Securities Act. 

Applicability

SEC Release Nos. 33-10884; 34-90300; IC-34082; File No. S7-05-20

• Companies contemplating a securities offering exempt from registration under the Securities Act
• Companies with existing securities exempt from registration under the Securities Act

Relevant dates

• Effective date is generally March 15, 2021
• Exception: extension of the temporary Regulation Crowdfunding provisions previously effective until September 1, 2021 are now effective from January 14, 2021 until March 1, 2023.

Key impacts

The SEC’s final rule seeks to simplify, align and revise the exempt offering framework in several ways:

• Establishes concise rules for when issuers move from one exemption to another and when they should be integrated, including four ‘safe harbors’ from integration.
• Raises the offering limits: 
  • Regulation A Tier 2 to $75 million, and $22.5 million for secondary sales
  • Regulation Crowdfunding to $5 million 
  • Rule 504 offerings to $10 million.
• Amends the individual investment limits for investors in Regulation Crowdfunding offerings by removing investment limits for accredited investors, and revises the calculation of investment limits for non-accredited investors.
• Formalizes rules governing certain offering communications, including permitting certain ‘test-the-waters’ and ‘demo day’ activities.
• Aligns provisions and requirements around disclosures, eligibility requirements and bad actor disqualifications. 

The amendments are also intended to reduce the complexities and confusion experienced under various requirements and conditions of the current framework, expand investment opportunities and promote access to capital. 

Related content

Handbook: Debt and equity financing