On May 4th, 2020 the Securities and Exchange Commission (SEC) announced that it would be providing temporary relief to small businesses affected by the COVID-19 pandemic. The program was established in consultation with the SEC’s Small Business Capital Formation Advisory Committee to help small businesses survive the unprecedented economic shutdown in the country. The relief that the SEC has adopted is not related to the $376 billion loan program conducted through the U.S. Small Business Administration (SBA). The SEC’s plan is not meant as a stimulus package like that of the SBA or the widely known federal stimulus package that sent $1,200 to millions of Americans, rather it looks to loosen certain restrictions and suspend certain compliance obligations related to its already established Regulation Crowdfunding program. The SEC hopes that by expediting the crowdfunding process, struggling small businesses will be able to conduct fundraising activities themselves faster and at a lower cost.
Is Your Company Eligible?
To benefit from the relief program, your company must meet certain criteria. To limit abuse of the relief proposal, only businesses that were established at least 6 months prior to their commencement of their crowdfunding offering are eligible. Issuers must meet the existing eligibility requirements for conducting a Regulation Crowdfunding offering. This means Non-U.S. issuers, investment companies, blank check companies, and Section 13(a) or 15(d) filers are not eligible for relief. In addition, any issuers that have conducted Regulation Crowdfunding offerings in the past must have complied with requirements in Section 4A(b) of the Securities Act and related rules to be eligible. Relief will apply only to offerings launched between May 4, 2020, and August 31, 2020, and issuers who do take advantage of the relief program must disclose to their investors that they are doing so.
Much Needed Relief
Stay-at-home orders, mass layoffs, government mandates, and concerns over personal safety have left thousands of small businesses unable to continue operations and put them in desperate need of financial help. Regulation Crowdfunding was designed as a way for small businesses and startups to expand their business. The relief outlined in the SEC’s May 4th ruling essentially takes the Regulation’s original structure and enables affected companies to use crowdfunding as a lifeboat to make it through the coronavirus pandemic. Benefits for issuers relying on relief include:
- Flexibility on certain requirements for issuers to assess interest prior to launching a crowdfunding offering
- Once the offering has been launched, issuers are allowed to close the offering and access the funds raised sooner than previously allowed
- Offers to buy securities must still be made only after the filing of the offering statement (Form C), however, financial statements may be omitted from the issuers offering statement
- Issuers are exempt from the requirement that financial statements be reviewed by an independent accountant if the issuer is offering more than $107,000 but not more than $250,000 within a 12-month period
- Anyone purchasing securities in the offering cannot cancel an investment commitment after 48 hours from an investment commitment, unless there is a material change to the offering
The SEC aims to speed up the crowdfunding process, while keeping investors safe and ensuring bad actors do not take advantage of relief meant for affected small businesses. If you think your business is ready to start a crowdfunding campaign, the first step is to file the Form C. Our Transform platform allows you to fill out and submit your relevant documents to the SEC quickly and easily, so you can spend less time worrying about compliance and more time working on your business.
