Citing the continuing challenges facing small businesses in the wake of the COVID-19 pandemic, the Securities and Exchange Commission (“SEC”) recently extended the temporary relief available to issuers using Regulation Crowdfunding (“Reg CF”) to access capital on an expedited basis. The relief was set to expire for offerings initiated after August 31, 2020, but now will extend to Reg CF offerings initiated on or before February 28, 2021. The ongoing regulatory relief will extend through September 1, 2021.
In the original and extended rule, the SEC relaxed regulatory requirements to allow eligible issuers to assess investor interest prior to spending the time and expense of preparing full offering materials. For offerings of up to $250,000, the relief relaxes the requirement that reviewed financial statements be prepared prior to commencing the offering and instead requires them to be prepared and made available to investors before the company receives binding commitments to invest. Once an offering is launched, the relief allows companies to close the offering and access funds on an expedited basis upon receipt of commitments covering the targeted offering amount, as opposed to the baseline 21-day offering period requirement.
In the release extending the temporary rule, the SEC noted the positive impact the rule has had to date: through July 31, 2020, 38% of the eligible issuers raising capital through Reg CF relied on one or more of the temporary relief provisions available through this rule.
To be eligible for the relief, companies must have been formed and operating for six or more months in addition to being eligible to conduct a Reg CF offering under existing rules. In addition, to the extent the company has previously conducted a Reg CF offering, the company must have complied with the requirements for issuers with respect to such offering to be eligible for the relief. Companies that choose to avail themselves of the relief must also prominently disclose that they are relying on this relief in conducting their Reg CF offerings.
For more information on the Reg CF offering relief, you can view text of the temporary rule here and the SEC’s announcement of the extension here. For more information on the SEC’s ongoing initiatives to provide regulatory relief during the pandemic, you can visit the SEC’s webpage here. Please reach out to a member of our Securities and Capital Markets group with any questions you may have with respect to SEC compliance and accessing the capital markets during the pandemic.
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