New Small Offering Exemption Proposal Gains Momentum

Simon Riveles General Solicitation, SEC, Uncategorized

Spurred on by calls from the President to jump start small business, Congress has, in the past several months, taken up a various pieces of legislation aimed at facilitating small company financing. One such piece of legislation is H.R. 1070 which, if enacted, would allow small companies to raise up to $50 million in a twelve month period without undergoing the burdensome process of an initial public offering.

The Small Company Capital Formation Act of 2011 was passed with almost unanimous bipartisan support by Congress on November 2, 2011. H.R. 1070 would amend the the Securities Act of 1933 to allow a company to offer and sell up to $50 million of its securities during a 12 month period, pursuant to certain terms and conditions under a special exemption from registration. If enacted into law, the new exemption would replace Regulation A which are currently capped at $5 million. H.R. 1070 contemplates that securities would be offered and sold on a public basis without restriction placed on their transferability.

Companies would be required to file an offering statement with the SEC in a form similar to the current Form 1-A and would be allowed to solicit interest in the offering prior to filing the statement (in contrast to Regulation A where companies may only “test the waters” to determine interest prior to filing the statement). After the statement is filed the company utilizing the new exemption would be required to file audited financial statements with the SEC along with certain disclosures regarding its operations, financial condition, corporate governance and use of investor funds.


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