On November 2, 2020, the Securities and Exchange Commission ("SEC") voted to adopt amendments to harmonize, simplify, and improve the exempt offering framework under the Securities Act of 1933, as amended (the "Securities Act"). The SEC believes these new rules will promote capital formation and expand investment opportunities in the private market by raising offering and investment limits, harmonizing rules around certain offering communications as well as issuer eligibility and disclosure requirements, while at the same time ensuring investor protection remains paramount.
Increases to Offering and Investment Limits
The new rules raise the existing offering size limitations on certain exempt offerings, including:
- Increasing the offering limit for Regulation Crowdfunding offerings from $1.07 million to $5 million;
- Increasing the Rule 504 of Regulation D offering limit from $5 million to $10 million;
- Removing individual investor limits for accredited investors in Regulation Crowdfunding offerings and amending the individual investor limits for non-accredited investors based on an income or net worth test; and
- Increasing the primary offering limit for Tier 2 of Regulation A offerings from $50 million to $75 million and the secondary sales limit from $15 million to $22.5 million.
Offering Integration Safe Harbors
The final rules establish a new "integration" framework. The SEC's integration principle states that when certain private offerings are conducted in parallel or in close time proximity, the offerings may need to be analyzed together, in the aggregate, to determine compliance with the claimed registration exemptions. The final rules add four non-exclusive safe harbors from integration that include: (i) most offerings commenced or concluded more than 30 calendar days apart from one another; (ii) Rule 701 or Regulation S compliant offerings; (iii) certain offerings for which a Securities Act registration statement has been filed; and (iv) offerings for which general solicitation is permitted that occur subsequent to a completed or terminated offering.
Other Changes Resulting from the Final Rules
Under the final rules, the SEC has established rules to permit the use of certain special purpose vehicles to facilitate investment in Regulation Crowdfunding offerings, broadened the circumstances where, and timing with which, a company may use generic solicitation materials to "test the waters" for an exempt offering as well as providing certain examples for communications that will not be deemed general solicitation or advertising. Additionally, Regulation Crowdfunding and Regulation A have added eligibility rules and the SEC has attempted to harmonize financial information requirements and bad actor disqualification rules across certain exempt offerings.
The final rules will become effective 60 days after their publication in the Federal Register, which, as of the publishing of this alert, has not yet occurred. The SEC's press release announcing the new rules and providing a chart of the various offering exemption requirements, as amended, is available at this link and the final rules are available at this link.
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