Monday, May 04. 2020
SEC Provides Temporary Relief to Allow Small Businesses to Pursue Expedited Crowdfunding Offerings
The SEC has taken multiple steps to assist financial market participants in addressing the impacts of the coronavirus, and it will continue to assess impacts relating to the coronavirus on investors and market participants. More information on the SEC’s approach and the steps it has taken can be found on its website. These particular temporary rules are intended to expedite the offering process for smaller, previously established companies directly or indirectly affected by COVID-19 that are seeking to meet their funding needs through the offer and sale of securities pursuant to Regulation Crowdfunding. The rule package offers flexibility for issuers that meet certain eligibility criteria to assess interest in a Regulation Crowdfunding offering prior to preparation of full offering materials. Once launched, the issuer may close such an offering and have access to funds sooner than would be possible in the absence of the temporary relief. In addition, the temporary rules create an exemption from certain financial statement review requirements for issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period.
The following changes are part of the temporary rule offering for Regulation Crowdfunding:
Requirement | Existing Rule | Temporary Amendment |
Eligibility | The exemption is not available to:
|
To rely on the temporary rules, issuers must meet the existing eligibility criteria PLUS:
|
Offers Permitted | After filing of offering statement (including financial statements). | After filing of offering statement, but financial statements may be initially omitted (if not otherwise available). |
Investment commitments accepted | After filing of offering statement (including financial statements). | After filing of offering statement that includes financial statements or amended offering statement that includes financial statements. |
Financial statements required when issuer is offering more than $107,000 and not more than $250,000 in a 12-month period |
Financial statements of the issuer reviewed by a public accountant that is independent of the issuer. | Financial statements of the issuer and certain information from the issuer’s Federal income tax returns, both certified by the principal executive officer. |
Sales permitted |
After the information in an offering statement is publicly available for at least 21 days. | As soon as an issuer has received binding investment commitments covering the target offering amount (note: commitments are not binding until 48 hours after they are given). |
Early closing permitted |
Once target amount is reached if:
|
As soon as binding commitments are received reaching target amount if:
|
Cancellations of investment commitments permitted |
For any reason until 48 hours prior to the deadline identified in the issuer’s offering materials. Thereafter, an investor is not able to cancel any investment commitments made within the final 48 hours of the offering (except in the event of a material change to the offering). | For any reason for 48 hours from the time of the investor’s investment commitment (or such later period as the issuer may designate). After this 48 hour period, an investment commitment may not be cancelled unless there is a material change to theoffering. |
The SEC will consider additional relief from other regulatory requirements where necessary or appropriate. Financial professionals affected by the coronavirus are encouraged to contact the staff with questions and concerns.
Sources:
Temporary Amendments to Regulation Crowdfunding (www.sec.gov)