SEC Proposes Amendments to Exempt Offering Framework

March 12, 2020

On March 4, 2020,the SEC proposed amendments to the exempt offering framework with the aims of reducing regulatory complexity, facilitating capital formation and expanding investment opportunities.

“Emerging companies—from early-stage start-ups seeking seed capital to companies that are on a path to become a public reporting company—use the exempt offering rules to access critical capital needed to create jobs and scale their businesses,” said Chairman Jay Clayton in the SEC’s press release. “The complexity of the current framework is confusing for many involved in the process, particularly for those smaller companies whose limited resources spent on navigating our overly complex rules are diverted from direct investments in the companies’ growth. These proposals are intended to create a more rational framework that better allows entrepreneurs to access capital while preserving and enhancing important investor protections.”

Among other things, the proposed amendments would:

  • Establish, in one broadly applicable rule, a general principle of integration and four non-exclusive safe harbors from integration, providing more certainty to issuers raising capital;
  • 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 offering communications between investors and issuers, including permitting issuers to engage certain “test-the-waters” and “demo day” communications without running afoul of the prohibition on general solicitation; and
  • Harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions to reduce differences between exemptions.

The proposal is subject to a 60-day public comment period.

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