Securities Law Archives - Randel Law, Inc., Your Business and Succession Planning Lawyer as well as Corporate Transparency Compliance

Capital Raising Trends

January 23, 2023 By Rick Randel

Rick Randel Raising Capital Business and Succession Planning

Every year the SEC has a “town hall” meeting to discuss trends in capital raising for start-up and small cap businesses. This year’s meeting takes place on January 24 at 10:00 AM pacific time.

The virtual meeting will cover:

what has been happening with capital raising across the country, including a spotlight on how and where capital is being raised and the unique challenges faced by underrepresented businesses,
the SEC’s work in supporting small businesses and their investors, and
the recommendations the SEC shared with Congress in its 2022 annual report.

If you are interested in attending the meeting, click here. Thanks,

Rick

This article is not intended and should not be relied upon as legal or tax advice pertaining to any specific matter. You are encouraged to seek competent legal and tax counsel before proceeding with any transaction involving any of the matters discussed above.

Navigate Your Way to Funding

October 28, 2021 By Rick Randel

If you are an entrepreneur or have clients who are entrepreneurs thinking about a funding round, the SEC has just released a new tool to help navigate the capital raising process: the “Capital Raising Navigator”. The navigator leads business owners through a series of questions, giving them various ideas and options for raising capital along the way.

It’s basically a flow-chart with questions like: how much do you want to raise? Are your investors all accredited? Will you be contacting investors in your own private network only, or more broadly? The answers lead the founder on a roadmap through various types of offerings the founder may want to pursue, including of course the various ways in which those offerings comply with the securities laws.

There are numerous links along the way, offering founders a wealth (pun intended) of information on the capital raising process. You can find the Capital Raising Navigator here:

https://www.sec.gov/capitalraising/navigator

Let me know if you or your client has any questions about the capital raising process. Thanks!

Rick

Update: SEC Rules Go Final

April 26, 2021 By Rick Randel

In my latest post I promised to update you on the status of the recent SEC amendments intended to simplify and harmonize the rules allowing the private offering of securities. There was some possibility the amendments might be postponed due to the change in presidential administrations.

This is to inform you that the SEC decided to go forward with the amendments and they have now gone into effect. Therefore the increases in the offering amounts for both Rule 504 and crowdfunding offerings are now in place.

If you missed the previous post or would like a refresher on the SEC’s changes, click here.

Feel free to contact me if you have any questions. Thanks,

Rick

SEC Simplifies Private Offering Compliance

January 31, 2021 By Rick Randel

Last November, the SEC adopted some significant regulations intended to simplify and harmonize the framework of rules allowing for offerings of securities (e.g. stock) to qualify for an exemption from registration (a “private offering” or “private placement”). In addition to reducing the complexity and confusion of the current framework, the SEC believes the amendments will expand investment opportunities and promote companies’ access to capital. The highlights include:

Establishing clearer rules for when issuers move from one exemption to another, and when two otherwise separate offerings should be treated as one offering for securities law purposes (aka “integration”).
Raising the offering limits:
- Regulation A Tier 2 to $75 million, and $22.5 million for secondary sales;
- Regulation Crowdfunding to $5 million; and
- Rule 504 offerings to $10 million.
Amending the individual investment limits for investors in crowdfunding offerings by removing investment limits for accredited investors, and revising the calculation of investment limits for non-accredited investors.
Formalizing rules governing certain offering communications, including permitting certain ‘test-the-waters’ and ‘demo day’ activities.
Aligning provisions and requirements around disclosures, eligibility requirements and bad actor disqualifications.

For a link to the SEC’s release announcing the new rules, click here.

The new rules are scheduled to become effective on March 15, 2021. However, as is standard practice for incoming administrations, the Biden administration has placed a “regulatory freeze” on regulations passed late in the previous administration. In most cases the regulations eventually go forward, but these new SEC rules were somewhat controversial in that many observers (including the now acting Chair of the SEC) felt they unduly relaxed compliance requirements, therefore increasing the possibility of fraud.

Regulations that have passed a certain point in the process of going final are not actually frozen; rather, the new administration has merely asked the relevant agency to consider postponing their implementation. The new SEC rules described above fall within this category. The SEC has not yet announced whether it will postpone the implementation of the above rules, but given the acting Chair’s and others’ opposition to the changes, there’s an excellent chance they will be postponed, possibly indefinitely.

Watch this space for further developments.

Rick

SEC Updates Definition of Accredited Investor

September 16, 2020 By Rick Randel

Most of us have heard the term “accredited investor”. Being accredited gives an investor access to a wider array of potential investments, because many of the exemptions from SEC registration are available only to offerings to accredited investors. The SEC recently amended the definition of accredited investor by:

Adding new categories of individuals to the definition of accredited investor.
Expanding the list of business entities that qualify as an accredited investor.
Adopting other modifications to the accredited investor definition and related rules.

New Categories of Individuals

Previously only directors, executive officers, or general partners of the issuer, and investors with a net worth of $1,000,000 or annual income of $200,000, qualified as accredited investors (interestingly, although there have been calls to adjust for inflation the dollar amounts that qualify an individual as an accredited investor, those dollar amounts were left unchanged).

The amendments added additional categories of individuals who qualify as accredited investors, including people who hold certain professional certifications. Only certifications specifically designated as qualifying by an SEC order will qualify. A list of all certifications, designations, and credentials recognized by the SEC as qualifying will be published on the SEC’s website. Initially, the following certifications qualify an individual as an accredited investor:

Licensed General Securities Representative (Series 7).
Licensed Investment Adviser Representative (Series 65).
Licensed Private Securities Offerings Representative (Series 82).

The SEC is expected to designate additional certifications, designations, and other credentials in the future.

The SEC also added “knowledgeable employees” of private funds to the definition of accredited investor for the purposes of investing in the fund they work for.

Additional Types of Business Entities

The SEC expanded the list of business entities that qualify as an accredited investor to include:

Most registered investment advisers.
Limited liability companies (LLCs) and other noncorporate entities that:
- have total assets in excess of $5 million; and
- were not formed for the specific purpose of acquiring the securities being offered.
Family offices and family clients that meet certain conditions.

Other Amendments

The SEC made the following additional changes to the definition of accredited investor:

Spousal Equivalents. For the purposes of pooling finances to qualify as accredited investors under the joint net worth or annual income tests, the SEC added the term “spousal equivalent” and defined it as “a cohabitant occupying a relationship generally equivalent to that of a spouse.”

Joint Net Worth. The calculation of “joint net worth” can now aggregate the net worth of an investor and his or her spouse or spousal equivalent, but the securities being purchased by an investor relying on the joint net worth test need not be purchased jointly.

Entity with Accredited Owners. While a business entity has always qualified as an accredited investor if all of its equity owners are accredited investors, the SEC has now clarified that, in determining accredited investor status, one may look through forms of equity ownership to natural persons.

I hope these changes allow you or some of your clients to invest in companies they may not have previously been able to. Feel free to contact me if you have any questions.