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The SEC has released a Final Rule adopting amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses.
In the Final Rule Release the SEC said “the amendments simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.” The Final Rule makes amendments to a plethora of rules, regulations and forms including:
- Regulation Crowdfunding
- The Securities Act of 1933
- Regulation A
- Regulation D
- Regulation S-K
- The Securities Exchange Act of 1934
- The Investment Company Act of 1940
Helpfully, the SEC provided an overview of amended capital-raising exemptions as part of the Press Release announcing the amendments
The amendments generally breakdown into four distinct categories with the impact on private fund issuers varying amongst the categories.
Additionally, the amendments provide four non-exclusive safe harbors from integration.
Offering and investment limits
The SEC amended the current offering and investment limitations for Regulation A, Regulation Crowdfunding and Rule 504 of Regulation D. None of these regulations are typically relied on for private fund issuers.
The SEC is amending the offering communication rules by:
- permitting an issuer to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities
- permitting Regulation Crowdfunding issuers to “test-the-waters” prior to filing an offering document with the Commission in a manner similar to current Regulation A
- providing that certain “demo day” communications will not be deemed general solicitation or general advertising.
Private fund issuers will also find the SEC’s amendments change the requirements for financial information that must be provided to non-accredited investors in Rule 506(b) private placements and harmonize the bad actor disqualification provisions in Regulation D, Regulation A and Regulation Crowdfunding.
The new rules will take effect 60 days after publication in the Federal Register, which has not yet occurred. They likely will be in effect sometime in January 2021