KMK Law Corporate & Securities Blog

On November 2, 2020, the Securities and Exchange Commission adopted rule amendments intended to increase opportunities for private companies to raise capital, including by setting higher limits on certain private offerings.  The SEC also simplified certain rules governing private offerings relating to investor communications and otherwise expanding investment opportunities.  In addition to expanding access to capital for private issuers, the intent of these amendments is to make it simpler for issuers to comply with increasingly complex SEC rules, including by eliminating excessive paperwork and legal costs. The summary below outlines these amendments, most of which will become effective 60 days following publication in the Federal Register.

I.  Increase in Annual Limits on Certain Private Offerings

The SEC increased the annual limit on Tier 2 Regulation A offerings from $50 million to $75 million.  The annual limit of $20 million for Tier 1 Regulation A offerings remains unchanged. Additionally, the SEC increased the annual limits on crowdfunding campaigns from $1.07 million to $5 million and on Rule 504 offerings from $5 million to $10 million.

II.  Other Amendments to Rules Governing Private Offerings

The amendments allow companies to engage in more “testing the waters” communications with investors in crowdfunding offerings to more accurately measure potential investor interest in such offerings. Permitting issuers to engage in these communications allows them to consult with investors to evaluate demand prior to offering to sell any securities, which is already allowed with Reg A+ offerings. In addition, the amendments permit companies to make investor pitches during “demo days” without violating securities laws prohibitions on general solicitation.

The amendments eliminated funding limits on accredited investors when contributing to crowdfunding campaigns. These investors are not subject to limits with respect to other private placements. However, as noted above, the offering limit of the crowdfunding campaign within any 12-month period may not exceed $5 million.

Finally, issuers will not be deemed to be in violation of the SEC’s “integration” rules, which are intended to prevent issuers from avoiding registration requirements by conducting large private offerings within a short period of time, provided the issuer waits 30 days between offerings and has a reasonable belief that the issuer did not solicit each investor through general solicitation or otherwise established a substantive relationship with the investor prior to the commencement of the offering. Currently, issuers are required to wait six months between offerings to avoid violating integration rules.

For more information on the matters discussed in this advisory, please contact Mark Reuter, Jim Kennedy, Allie Westfall, Chris Brinkman or Brett Niehauser. To ensure that you are current on recent activities, subscribe to our Corporate & Securities Blog by entering your email address in the sidebar.