The SEC recently announced new and amended rules aimed at helping companies raise money from investors via intrastate and small offerings.
Rule 147 has been amended, with Rule 147A being added, both of which ease restrictions on company solicitation of investor capital in intrastate offerings. The Reg D rules were also amended, increasing the limit on equities sold or debt raised within one year, without triggering registration with the SEC.
These additions harken back to The JOBS Act and Reg A+, with the SEC’s continued goal of making capital raising easier for smaller issuers.
Rule 147 and Rule 147A modify the existing intrastate offering rules permitting companies to raise money from investors within their state without SEC registration. These changes tremendously simplify the offering process, saving issuers massive compliance costs.
Previously, issuers were barred from advertising a raise outside their state. This rule quickly became outdated with the rise of online crowdfunding platforms. wherein it was seemingly impossible to restrict online communications to one state, making issuers of intrastate securities unable to advertise their offerings online.
The new rules allow intrastate offerings to reach out-of-state residents if its a state where issuer does business. An issuer must have a reasonable belief that purchasers reside in their state at the time of sale, and a written representation from each purchaser is required.
The changes to Reg D’s Rule 504 increases the aggregate offering amount from $1M to $5M within a one-year period month. Issuers should note that Rule 504 Reg D offerings are still subject to bad actor disqualifications.
Commissioner Kara M. Stein said she anticipates the new rules will “enhance the fundraising options available to small and local businesses”, adding “[o]nly time will tell whether we can relax capital-raising regulations, while also maintaining appropriate investor protections.”
Lastly, she offered her opinion on the development of secondary markets as a result of the advent of Reg A+ offerings. “Here are my two words AKA two cents: early exits…