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.
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.