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Final Rule: Facilitating Capital Formation and Expanding

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Final Rule: Facilitating Capital Formation and Expanding Conformed to Federal Register Version SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 227, 229, 230, 239, 240, 249, 270, and 274 [Release Nos. 33-10884; 34-90300; IC-34082; File No. S7-05-20] RIN 3235-AM27 Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: We are adopting amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses and entrepreneurs across the United States. Specifically, the amendments simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections. The amendments also seek to close gaps and reduce complexities in the exempt offering framework that may impede access to investment opportunities for investors and access to capital for businesses and entrepreneurs. DATES: General: This final rule is effective on March 15, 2021. Exceptions: 1. Revised 17 CFR 227.100(b)(7) (amendatory instruction 2), previously effective until Sept. 1, 2021, at 85 FR 27132, May 7, 2020, is now effective from January 14, 2021, to March 1, 2023. 2. Newly redesignated and revised 17 CFR 227.201(aa) (amendatory instruction 4) remains effective from January 14, 2021, until September 1, 2021. 3. 17 CFR 227.201(bb) (amendatory instruction 5) and 17 CFR 227.301(e) (amendatory instruction 10) are effective from January 14, 2021, to March 1, 2023. 4. Amendments to 17 CFR 227.303(g) (amendatory instruction 11) and 17 CFR 227.304(e) (amendatory instruction 12) are effective from January 14, 2021, and remain effective until September 1, 2021. 5. The amendments to the introductory paragraph in the Optional Question and Answer Format for an Offering Statement of Form C (referenced in § 239.900) are applicable from January 14, 2021, to March 1, 2023. FOR FURTHER INFORMATION CONTACT: Anthony Barone or John Byrne, Special Counsel, Office of Small Business Policy, or Steven G. Hearne, Senior Special Counsel, Office of Rulemaking, at (202) 551-3460, Division of Corporation Finance; Jennifer Songer, Branch Chief, or Lawrence Pace, Senior Counsel, at (202) 551-6999, Investment Adviser Regulation Office, Division of Investment Management; U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are adopting amendments to: Commission Reference CFR Citation (17 CFR) Regulation Crowdfunding Rules 100 through 504 §§ 227.100 through 227.504 Rule 100 § 227.100 Rule 201 § 227.201 Rule 203 § 227.203 Rule 204 § 227.204 Rule 206 § 227.206 Rule 301 § 227.301 Rule 303 § 227.303 Rule 304 § 227.304 Rule 503 § 227.503 § 227.504 Securities Act of 1933 (Securities Rule 147 § 230.147 Act)1 Rule 147A § 230.147A Rule 148 § 230.148 1 15 U.S.C. 77a et seq. 2 Rule 152 § 230.152 Rule 155 § 230.155 Rule 241 § 230.241 Regulation A Rules 251 through 263 §§ 230.251 through 230.263 Rule 251 § 230.251 Rule 255 § 230.255 Rule 259 § 230.259 Rule 262 § 230.262 Regulation D Rules 500 through 508 §§ 230.500 through 230.508 Rule 500 § 230.500 Rule 502 § 230.502 Rule 504 § 230.504 Rule 506 § 230.506 Regulation S-K Items 10 through 1305 §§ 229.10 through 229.1305 Item 601 § 229.601 Form S-6 § 239.16 Form N-14 § 239.23 Form 1-A § 239.90 Form C § 239.900 Securities Exchange Act of 1934 Rule 12g-6 § 240.12g-6 (Exchange Act)2 Rule 12g5-1 § 240.12g5-1 Form 20-F § 249.220f Form 8-K § 249.308 Investment Company Act of 1940 Rule 3a-9 § 270.3a-9 (Investment Company Act)3 Form N-8B-2 § 274.12 Securities Act and Investment Form N-1A §§ 239.15A and 274.11A Company Act Form N-2 §§ 239.14 and 274.11a-1 Form N-3 §§ 239.17a and 274.11b Form N-4 §§ 239.17b and 274.11c Form N-5 §§ 239.24 and 274.5 Form N-6 §§ 239.17c and 274.11d Table of Contents I. INTRODUCTION AND BACKGROUND II. DISCUSSION OF FINAL AMENDMENTS 2 15 U.S.C. 78a et seq. 3 15 U.S.C. 80a-1 et seq. 3 A. Integration 1. Integration Principles and Application (Rule 152(a) General Principle and Introductory Language to Rule 152) 2. Integration Safe Harbors 3. Commencement, Termination, and Completion of Offerings (Rules 152(c) and 152(d)) 4. Conforming Amendments to Securities Act Exemptions B. General Solicitation and Offering Communications 1. Exemption from General Solicitation for “Demo Days” and Similar Events 2. Solicitations of Interest 3. Other Regulation Crowdfunding Offering Communications C. Rule 506(c) Verification Requirements 1. Proposed Amendments 2. Comments 3. Final Amendments D. Harmonization of Disclosure Requirements 1. Rule 502(b) of Regulation D 2. Proposed Amendments to Simplify Compliance with Regulation A 3. Confidential Information Standard E. Offering and Investment Limits 1. Regulation A 2. Rule 504 3. Regulation Crowdfunding F. Regulation Crowdfunding and Regulation A Eligibility 1. Regulation Crowdfunding Eligible Issuers 2. Regulation Crowdfunding Eligible Securities 3. Regulation A Eligibility Restrictions for Delinquent Exchange Act Filers G. Bad Actor Disqualification Provisions 1. Proposed Amendments 2. Comments 3. Final Amendments III. OTHER MATTERS IV. ECONOMIC ANALYSIS A. Broad Economic Considerations B. Baseline C. Economic Effects of the Final Amendments 4 1. Integration 2. General Solicitation and Offering Communications 3. Rule 506(c) Verification Requirements 4. Disclosure Requirements 5. Offering and Investment Limits 6. Eligibility Requirements in Regulation Crowdfunding and Regulation A 7. Bad Actor Disqualification Provisions V. PAPERWORK REDUCTION ACT VI. FINAL REGULATORY FLEXIBILITY ANALYSIS VII. STATUTORY AUTHORITY I. INTRODUCTION AND BACKGROUND On March 4, 2020, the Securities and Exchange Commission (the “SEC” or “Commission”) proposed amendments to simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.4 Specifically, the Commission proposed amendments that (1) address the ability of issuers to move from one exemption to another, (2) set clear and consistent rules governing offering communications between investors and issuers, (3) address potential gaps and inconsistencies in our rules relating to offering and investment limits, and (4) harmonize certain disclosure requirements and bad actor disqualification provisions. The Securities Act requires that every offer5 and sale of securities be registered with the Commission, unless an exemption from registration is available. The Securities Act, however, also contains a number of exemptions from its registration requirements and authorizes the 4 See Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Release No. 33-10763 (Mar. 4, 2020) [85 FR 17956 (Mar. 31, 2020)] (“Proposing Release”). 5 See 15 U.S.C. 77b(a)(3) (noting that an offer includes every attempt to dispose of a security or interest in a security, for value; or any solicitation of an offer to buy a security or interest in a security). 5 Commission to adopt additional exemptions. Section 3 of the Securities Act generally provides exemptions that are based on characteristics of the securities themselves.6 Section 4 of the Securities Act identifies transactions that are exempt from the registration requirements.7 In addition, Section 28 of the Securities Act authorizes the Commission to exempt other persons, securities, or transactions to the extent necessary or appropriate in the public interest and consistent with the protection of investors.8 The current exempt offering framework is complex and made up of differing, exemption-specific requirements and conditions. The scope of the exempt offering framework has evolved over time through Commission rules and legislative changes, including most recently through the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”),9 the Fixing America’s Surface Transportation Act of 2015,10 and the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.11 On June 18, 2019, the Commission issued a concept release that solicited public comment on possible ways to simplify, harmonize, and improve the exempt offering framework under the Securities Act to promote capital formation and expand investment opportunities while maintaining appropriate investor 6 See 15 U.S.C. 77c. However, some Section 3 exempted securities are identified based on the transaction in which they are offered or sold. For example, Section 3(b)(1) of the Securities Act authorizes the Commission to exempt certain issues of securities where the aggregate amount offered does not exceed $5 million. 15 U.S.C. 77c(b)(1). 7 See 15 U.S.C. 77d. 8 15 U.S.C. 77z-3. 9 Pub. L. No. 112-106, 126 Stat. 306 (2012). The JOBS Act, among other things: (1) Directed the Commission to revise Rule 506 to eliminate the prohibition against general solicitation or general advertising for offers and sales of securities to accredited investors (See Section 201(a)(1)); (2) Added Section 4(a)(6) [15 U.S.C. 77d(a)(6)] and Section 4A [15 U.S.C. 77d-1(b)] to the Securities Act and directed the Commission to issue rules to permit certain crowdfunding offerings (See Section 302); and (3) Directed the Commission to expand Regulation A (See Section 401). 10 Pub. L. No. 114-94, 129 Stat. 1312 (2015). 11 Pub. L. No. 115-174, 132 Stat. 1296 (2018). 6 protections.12 While commenters on the Concept Release expressed many perspectives
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