Capital Raising Under Regulation CF Just Became (Temporarily) Easier
BY Zachary Fallon, Julian Russo, Jenny Leung.
The temporary final rules are intended to expedite the offering process for small businesses affected by COVID-19 by providing tailored, conditional relief from certain requirements of Reg CF.
Small businesses across the United States continue to struggle with cash flow concerns as economic activity has slowed to a crawl. Some businesses have found temporary relief as they have received forgivable loans under the CARES Act. However, as these concerns may persist, the SEC has issued temporary rules that let small businesses take advantage of Regulation Crowdfunding (“Reg CF”).1
The most critical changes for small businesses relate to the ability of companies to:
commence a Reg CF offering with initially omitted financial statements;
raise capital of up to $250,000 with financial statements and Federal income tax return information that are certified by its principal executive officer;
generally make sales in the offering as soon as binding commitments covering the target offering amount are received; and
close the offering as soon as binding commitments are received if conditions, such as the provision of specified disclosures and notices, are met.2
These rules apply to securities offerings initiated under Reg CF between May 4, 2020 and August 31, 2020. Only issuers that have been organized and had operations for at least six months prior to the commencement of the offering are eligible under the final rules.
The following table summarizes the new rules:
SEC table
Not sure whether your small business is eligible for the temporary relief?
Feel free to reach out to our team: Zachary Fallon, James Blakemore, Julian Russo, and Jenny Leung.
Footnotes
The SEC relied on its general exemptive authority under Section 28 of the Securities Act of 1933, 15 USC 77z-3, to implement the temporary rules on the basis that the rules are necessary or appropriate in the public interest and consistent with its investor protection mandate.
See Rel. No 33-10781 (May 4, 2020), available at https://www.sec.gov/rules/interim/2020/33-10781.pdf.
