SEC Provides Temporary, Conditional Relief To Allow Small Businesses To Pursue Expedited Crowdfunding Offerings

The Securities and Exchange Commission today announced that it is providing temporary, conditional relief for established smaller companies affected by COVID-19 that may look to meet their urgent funding needs through a Regulation Crowdfunding offering. Today's actions, which follow suggestions made by members of the SEC's Small Business Capital Formation Advisory Committee, will expedite the offering process for eligible companies by providing relief from certain rules with respect to the timing of a company's offering and the financial statements required. 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, 2020.

"In the current environment, many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner," said SEC Chairman Jay Clayton. "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."

The temporary rules are the latest in a series of steps the Commission has taken to assist financial market participants in addressing the impacts of the coronavirus. The Commission's website provides additional information regarding its response. The Commission and its staff continue to assess impacts relating to the coronavirus on investors and market participants, and will consider additional relief from other regulatory requirements where necessary or appropriate. Firms and financial professionals affected by the coronavirus are encouraged to contact the staff with questions and concerns.

FACT SHEET

Temporary Amendments to Regulation Crowdfunding

May 4, 2020

Action

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

Highlights

The temporary rules are intended to expedite the offering process for smaller, previously established companies directly or indirectly affected by COVID-19 that are seeking to meet their funding needs through the offer and sale of securities pursuant to Regulation Crowdfunding.

The temporary rules provide flexibility for issuers that meet certain eligibility criteria to assess interest in a Regulation Crowdfunding offering prior to preparation of full offering materials, and then once launched, to close such an offering and have access to funds sooner than would be possible in the absence of the temporary relief. The temporary rules also provide an exemption from certain financial statement review requirements for issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period.

The following table summarizes the current rules and today’s temporary amendments:

Requirement	Existing Regulation Crowdfunding	Temporary Amendment
Eligibility	The exemption is not available to: Non-U.S. issuers; Issuers that are required to file reports under Section 13(a) or 15(d) of the Securities Exchange Act of 1934; Investment companies; Blank check companies; Issuers that are disqualified under Regulation Crowdfunding’s disqualification rules; and Issuers that have failed to file the annual reports required under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement.	To rely on the temporary rules, issuers must meet the existingeligibility criteria PLUS: The issuer cannot have been organized and cannot have been operating less than six months prior to the commencement of the offering; and An issuer that has sold securities in a Regulation Crowdfunding offering in the past, must have complied with the requirements in section 4A(b) of the Securities Act and the related rules.
Offers permitted	After filing of offering statement (including financial statements)	After filing of offering statement, but financial statements may be initially omitted (if not otherwise available)
Investment commitments accepted	After filing of offering statement (including financial statements)	After filing of offering statement that includes financial statements or amended offering statement that includes financial statements
Financial statements required when issuer is offering more than $107,000 and not more than $250,000 in a 12-month period	Financial statements of the issuer reviewed by a public accountant that is independent of the issuer	Financial statements of the issuer and certain information from the issuer’s Federal income tax returns, both certified by the principal executive officer
Sales permitted	After the information in an offering statement is publicly available for at least 21 days	As soon as an issuer has received binding investment commitments covering the target offering amount (note: commitments are not binding until 48 hours after they are given)
Early closing permitted	Once target amount is reached if: The offering remains open for a minimum of 21 days; The intermediary provides notice about the new offering deadline at least five business days prior to the new offering deadline; Investors are given the opportunity to reconsider their investment decision and to cancel their investment commitment until 48 hours prior to the new offering deadline; and At the time of the new offering deadline, the issuer continues to meet or exceed the target offering amount.	As soon as binding commitments are received reaching target amount if: The issuer has complied with the disclosure requirements in temporary Rule 201(z); The intermediary provides notice that the target offering amount has been met; and At the time of the closing of the offering, the issuer continues to meet or exceed the target offering amount.
Cancellations of investment commitments permitted	For any reason until 48 hours prior to the deadline identified in the issuer’s offering materials. Thereafter, an investor is not able to cancel any investment commitments made within the final 48 hours of the offering (except in the event of a material change to the offering).	For any reason for 48 hours from the time of the investor’s investment commitment (or such later period as the issuer may designate). After such 48 hour period, an investment commitment may not be cancelled unless there is a material change to the offering.

Requirement

Existing Regulation Crowdfunding

Temporary Amendment

Eligibility

The exemption is not available to:

Non-U.S. issuers;
Issuers that are required to file reports under Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
Investment companies;
Blank check companies;
Issuers that are disqualified under Regulation Crowdfunding’s disqualification rules; and
Issuers that have failed to file the annual reports required under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement.

To rely on the temporary rules, issuers must meet the existingeligibility criteria PLUS:

The issuer cannot have been organized and cannot have been operating less than six months prior to the commencement of the offering; and
An issuer that has sold securities in a Regulation Crowdfunding offering in the past, must have complied with the requirements in section 4A(b) of the Securities Act and the related rules.

Offers permitted

After filing of offering statement (including financial statements)

After filing of offering statement, but financial statements may be initially omitted (if not otherwise available)

Investment commitments accepted

After filing of offering statement (including financial statements)

After filing of offering statement that includes financial statements or amended offering statement that includes financial statements

Financial statements required when issuer is offering more than $107,000 and not more than $250,000 in a 12-month period

Financial statements of the issuer reviewed by a public accountant that is independent of the issuer

Financial statements of the issuer and certain information from the issuer’s Federal income tax returns, both certified by the principal executive officer

Sales permitted

After the information in an offering statement is publicly available for at least 21 days

As soon as an issuer has received binding investment commitments covering the target offering amount (note: commitments are not binding until 48 hours after they are given)

Early closing permitted

Once target amount is reached if:

The offering remains open for a minimum of 21 days;
The intermediary provides notice about the new offering deadline at least five business days prior to the new offering deadline;
Investors are given the opportunity to reconsider their investment decision and to cancel their investment commitment until 48 hours prior to the new offering deadline; and
At the time of the new offering deadline, the issuer continues to meet or exceed the target offering amount.

As soon as binding commitments are received reaching target amount if:

The issuer has complied with the disclosure requirements in temporary Rule 201(z);
The intermediary provides notice that the target offering amount has been met; and
At the time of the closing of the offering, the issuer continues to meet or exceed the target offering amount.

Cancellations of investment commitments permitted

For any reason until 48 hours prior to the deadline identified in the issuer’s offering materials. Thereafter, an investor is not able to cancel any investment commitments made within the final 48 hours of the offering (except in the event of a material change to the offering).

For any reason for 48 hours from the time of the investor’s investment commitment (or such later period as the issuer may designate). After such 48 hour period, an investment commitment may not be cancelled unless there is a material change to the offering.

Related Materials

SEC Temporary Final Rule