SEC Adopts Amendments to Exempt Offering Framework

December 1, 2020

On November 2, 2020, the SEC adopted amendments to the exempt offering framework with the aims of reducing regulatory complexity, facilitating capital formation and expanding investment opportunities.

“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 the SEC’s press release. “While each component in this patchwork system makes some sense in isolation, collectively, there is substantial room for improvement. 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.”

Among other things, the amendments:

  • Establish more clearly 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;
  • Extend for 18 months the effectiveness of previously-adopted temporary relief from certain requirements of Regulation Crowdfunding to facilitate capital formation for small businesses impacted by COVID-19;
  • 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.

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.

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