The Securities and Exchange Commission (SEC) is soliciting public comment on a proposed rule aimed at making it easier for companies to exempt securities offerings of up to $50 million annual from the Securities Act of 1933.
The rule amends Regulation A, which governs such exemptions, as called for in the Jumpstart Our Business Startups (JOBS) Act, which Congress pass and President Obama signed in 2012 in a bid to make capital more accessible to small businesses. Other provision of the JOBS Act require the SEC to also amend Regulation D to remove a ban on advertising of private placements to qualified investors, while still other provisions are designed to make it easier for companies to raise money on equity crowdfunding sites. The SEC, whose primary mission is protecting investors, has been slow to propose such rules for fear deregulation will disadvantage investors.
Currently, securities offered under Regulation A are limited to $5 million and are subject to each state’s “blue sky,” or disclosure laws. The proposed rule would establish two different tiers of securities offerings under Regulation A. Tier One offerings would be for financings of $5 million or less, and these offerings would still be subject to the existing requirements of Regulation A. Tier Two offerings would be for up to $50 million and there would be an exemption from a state’s blue sky laws. However, Tier Two offerings would be subject to additional disclosure and auditing requirements.
The SEC released the proposed rule Dec. 18 but the public will have up to 60 days after it is published in the Federal Register to submit their comments. Entrepreneurs and executives considering issuing securities are advised to ask their attorneys to review the 387-page proposed rule
, which can be viewed on the SEC’s website.