SEC simplifies the exempt offering framework


Authored by RSM US LLP

The SEC recently issued a final rule in Release 33-10884, Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets. The final rule is intended to address difficulties and confusion in applying the exempt offering framework, which is complex and made up of differing requirements, such as those in Regulation D, Regulation A and Regulation Crowdfunding, among others.

The SEC’s final rule generally retains the current exempt offering structure, but addresses, in one broadly applicable rule, the ability of issuers to move from one exemption to another and ultimately to a registered offering. The final rule includes the following amendments, among many others:

  • Amending the financial statement information requirements in Regulation D Rule 502(b) for sales to non-accredited investors to align with the financial statement requirements in Regulation A. Specifically:
    • For Regulation D Rule 506(b) offerings of up to $20 million in securities, issuers no longer are required to provide audited financial statements and instead are required to comply with the financial statement requirements that apply to Tier 1 Regulation A offerings, which do not require audited financial statements unless the issuer already has obtained an audit for another purpose
    • For Regulation D offerings of greater than $20 million in securities, issuers are required to provide audited financial statements and comply with the requirements of Regulation S-X similar to Tier 2 Regulation A offerings
  • Permitting issuers who meet certain criteria to incorporate previously filed financial statements by reference into a Regulation A offering circular
  • Raising the maximum offering amount under:
    • Tier 2 of Regulation A from $50 million to $75 million, and increasing the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million
    • Regulation Crowdfunding from $1.07 million to $5 million; and any initial offerings of more than $1.07 million continue to be required to provide audited financial statements
    • Rule 504 of Regulation D from $5 million to $10 million
  • Establishing safe harbor rules for analyzing compliance with applicable conditions and limitations when issuers use various private offering exemptions in parallel or in close time proximity