SEC Adopts Changes to the Exempt Offering Framework

November 2020

On November 2nd, the SEC adopted amendments to the exempt offering framework (framework) used by entities to raise capital in the private capital markets. The current exempt framework is considered complex and difficult to understand and apply by many companies. The changes are intended to promote capital formation, simplify the framework and expand investment opportunities while retaining or improving important investor protections.  The amendments follow the SEC’s concept release issued in June 2019 that solicited public comment on possible ways to simplify, harmonize, and improve the framework, as well as proposed amendments to the framework issued in March 2020. The final amendments generally become effective 60 days following their publication in the Federal Register. 
 
All offers and sales of securities in the U.S. are required to be registered with the SEC unless one of several exemptions applies. Many of the exemptions are based on the characteristics of the securities being offered. Some of the more common types of exemptions are offerings under Regulations A, D and Crowdfunding under the Securities Act. The amendments:

  • Establish a general integration principle to help determine whether multiple transactions are considered part of the same offering for compliance purposes;  

  • Increase the offering limits and revise certain individual investment limits as follows;

 

Amendments

Regulation A

Rule 504 of Regulation D

Regulation Crowdfunding

Offering and
Investment
 Limits

Raise maximum offering amount under Tier 2 from $50 million to $75 million and for secondary sales under Tier 2 from $15 million to $22.5 million

Raise the maximum offering amount from $5 million to $10 million

 

  • Raise offering limit from $1.07 million to $5 million
  • Investment limits will not apply to accredited investors and changes were made to the calculation for non-accredited investors

 

 

















 

 

  • Set clear and consistent rules on offering communications between investors and issuers, including permitting certain “demo day” activities that are not deemed general solicitation or advertising; and

  • Synchronize certain disclosure and eligibility requirements and bad actor disqualification provisions to reduce differences between exemptions.   

An overview of all of the amended capital-raising exemptions is included within the adopting release on Page 9 and in the SEC’s press release.


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