Tuesday, May 5, 2020

Temporary Rules Make Crowdfunding Easier

Yesterday, on May 4th, the Securities and Exchange Commission (the "SEC") adopted temporary rules (through the end of August) making it easier for smaller companies affected by COVID-19 to raise capital through a Regulation Crowdfunding offering.  To rely on these temporary rules, the issuers will need to disclose to the investors that they are specifically relying on them as well as meet certain enhanced eligibility requirements, one of which is that the company has been in existence for over 6 months.  The SEC press release provides a good overview of the temporary rules.

In particular, the rules allow companies to initially omit financial statements, which is an important amendment.  In our experience, preparing financial statements often delays the campaigns.  The companies can now accept investment commitments without having to wait until the closing, so long as their offering statement includes the financials.  For smaller campaigns (not exceeding $250,000), the financial statements do not have to be reviewed by a CPA but can be certified by the principal executive officer.  Sales are permitted as soon as the issuer has received binding investment commitments covering the targeted amount (no need to wait 21 days, which is the minimum offering length).  Investment commitments become binding 48 hours after they are given, and cannot be canceled after that unless there is a material change in the offering.  Early closing is permitted as soon as binding commitments reaching the target amount are received.

These measures will simplify and, what is most important, will expedite the crowdfunding campaigns, allowing the smaller companies to raise much-needed funds.

This blog contains general information about legal matters. The information is not advice, and should not be treated as such. Communication of information by, in, to or through this blog and your receipt or use of it: (1) is not provided in the course of and does not create or constitute an attorney-client relationship; (2) is not intended to convey or constitute legal advice; and (3 is not a substitute for obtaining legal advice from a qualified attorney. Pursuant to Rule 1-400(D)(4), you are notified that this blog may constitute a communication or solicitation concerning the availability for professional employment of a member or a law firm in which a significant motive is pecuniary gain. For more information on this topic, please contact the author, Arina Shulga.

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