SEC Gives Break on Crowdfunding Rules for Some Small Firms

Think Advisor | Melanie Waddell  | May 4, 2020

SEC loosens rules temporarily for Covid - SEC Gives Break on Crowdfunding Rules for Some Small FirmsThe relief is intended for established companies who may have an urgent need of funding during the pandemic.

The Securities and Exchange Commission announced Monday temporary final rules that provide tailored, conditional relief to established smaller companies from certain requirements of Regulation Crowdfunding.

The relief relates to the timing of the offering and the availability of financial statements required to be included in issuers’ offering materials while retaining appropriate investor protections.

The relief was set up follow suggestions made by the SEC’s Small Business Capital Formation Advisory Committee for established smaller companies affected by COVID-19 that may look to meet their urgent funding needs through a Regulation Crowdfunding offering.

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To take advantage of the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. The relief will apply to offerings launched between the effective date of the temporary rules and Aug. 31.

SEC Chairman Jay Clayton said in a Monday statement that “many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner. Today’s action responds to feedback we have received from our Small Business Capital Formation Advisory Committee and others about the difficulties these companies may face in conducting an offering within a time frame that meets pressing capital needs, while continuing to provide appropriate protections for investors.”

A securities offering under Regulation Crowdfunding, the SEC stated,

“[Regulation Crowdfunding] may be an attractive fundraising option for some small businesses at this time, particularly as a means of allowing an issuer to make use of the internet to reach out to its customers or members of its local community as potential investors as well as to existing investors.”

However, the commission stated that it “understands that certain Regulation Crowdfunding requirements may make it difficult for an issuer affected by COVID-19 to launch an offering and see it to completion within a time frame that meets its urgent capital needs.”

View the Temporary SEC Final Rules --> here

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