On November 2, 2020, the Securities and Exchange Commission, with a view to promoting capital formation and expanding investment opportunities in offerings not registered with the SEC, voted to amend its rules to “harmonize, simplify, and improve the multilayer and overly complex exempt offering framework.”
Highlights of the amendments include:
- Increasing the offering limits in Regulation D Rule 504 offerings from $5 million to $10 million
- Increasing the offering limits for seldom-used Regulation A+ from $50 million to $75 million
- Raising the offering limits of Regulation Crowdfunding from $1.07 million to $5 million, removing the investment limits for accredited investors, using the greater of annual income or net worth when calculating investment limits for non-accredited investors, and extending for 18 months the temporary rule that exempts certain Regulation Crowdfunding offerings of $250,000 or less from the financial statement review requirement
- Permitting an issuer to use generic solicitation of interest materials to “test-the-waters” prior to deciding which exemption to use for the offering, such that use of such materials will not be considered a “general solicitation” that would otherwise disqualify an issuer from relying upon the private offering exemption. Also, certain “demo day” communications—pitches by startups to investors, analysts, media, and the public in general—will not be considered to be general solicitations.
- Reducing the time period for integration of exempt offerings from 6 months to 30 days, subject to restrictions if the offering is one in which general solicitations are prohibited
- Changing the financial information that must be provided to non-accredited investors in Rule 506(b) offerings (offerings with no general solicitation), and adding a new item to the non-exclusive list of verification methods for Rule 506(c) offerings (offerings to accredited investors only where general solicitation is permitted)
The new regulations go into effect in 60 days, except for the extension of temporary crowdfunding provision for reviewed financial statements, which is effective immediately.