The US Securities and Exchange Commission wants to up by 10 times how much money companies can raise via a simplified public offering. Under their proposal, firms could raise up to $50 million, instead of just $5 million, while giving investors less disclosures than what public companies are obligated to provide. The measure, which has just been issued for public comment, is the Jumpstart Our Business Startups Act’s last big requirement.
The JOBS Act was established to assist small business in going public and raising capital. Currently, it lets the SEC preempt states from overseeing Regulation A offerings if only “qualified” buyers are allowed to purchase the the deals or if they are offered via a stock exchange. However, the SEC has to approve the offerings and companies employing the exemption have to get approval by regulators in each state where shares were sold. It is this review by the states of Regulation A deals that reportedly have been a biggest hassle because each state has its own standards for whether to approve offers.
It was Congress and the 2012 Jumpstart Our Business Startups Act that mandated revisions to the Commission’s Regulation A so that investors will want to get behind smaller companies. According to a Government Accountability Office report, in 2011, the number of businesses trying to raise money under the current rule dropped to 19—way down from the 116 businesses that did in 1997. Some said that the requirements were too strict for how much money they were allowed to raise.
With the SEC’s proposal, referred to as “Regulation A-plus,” deals between $5 million and $50 million would be exempt from state oversight but they would have to meet additional regulatory obligations, such as they would have to investors audited financial statements, reports about material events, and semi-yearly and yearly reports. Investors would have a cap on how much stock they could buy, with individual investments limited to not greater than 10% of a person’s net worth or yearly income. Securities could be traded freely.
Deals under $5 million would still have to undergo state review. However, companies could choose to get out of state scrutiny of smaller deals if they submit financial statements that have been audited and contend with the other requirements that larger offerings have to meet.
The SEC’s unanimous vote on this proposal is the third rule that the regulator has brought forward under the JOBS ACT. Previous proposed rules involved one to allow equity crowdfunding and removing the ban on advertising of private stock deals.
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SEC Rule Proposal (PDF)
SEC Proposes Rules to Increase Access to Capital for Smaller Companies, SEC, December 18, 2013
SEC Plans Higher Limit for Small Stock Deals Under JOBS Act, Bloomberg, December 18, 2013
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Investment Opportunities to Get More Advertising Exposure Because of JOBS Act Mandate Lifting Ban on General Solicitation, Stockbroker Fraud Blog, January 29, 2013
Proposal Getting Rid of Ban Against General Solicitation and Advertising For Certain Private Placements Ended up with Narrower Scope Because of Short Deadline, Said SEC Deputy Director, Stockbroker Fraud Blog, September 20, 2012
Will the JOBS ACT Will Expand Private Offerings But Hurt Public Markets?, Institutional Investor Securities Blog, July 6, 2012