On May 23, the Securities and Exchange Commission proposed a series of six measures to modernize and improve its capital raising and reporting requirements for smaller companies. Many of the proposals address key recommendations made by the SEC’s Advisory Committee on Smaller Public Companies in its final report. They include:

  • A new system of securities regulation for smaller public companies that would expand eligibility for the SEC’s scaled disclosure and reporting requirements for smaller companies by making the scaled requirements available to all companies with up to $75 million in public float and simplify the SEC’s disclosure and reporting requirements for smaller companies eligible to use them—small business issuers and non-accelerated filers; 
  • Revise the eligibility requirements of Form S-3 and Form F-3 so companies with a public float below $75 million can take advantage of the benefits of shelf registration, provided such companies do not sell more than the equivalent of 20% of their public float in primary offerings registered on Form S-3 or Form F-3, as applicable, over any one-year period; 
  • Establish a new exemption from the registration requirements of the Securities Act of 1933 for sales of securities to a newly defined category of “qualified purchasers” in which limited advertising would be permitted and make certain other adjustments to the definitions and the integration safe harbor of Regulation D; 
  • Shorten the holding periods under Rule 144 of the Securities Act of 1933 for restricted securities and revise the resale provisions of Rule 145(d) of the Securities Act of 1933 to reduce the cost of capital and to increase access to capital; 
  • Establish new exemptions for compensatory employee stock options for private non-reporting issuers and for issuers that have registered under Section 12 of the Securities Exchange Act of 1934 the class of securities underlying the compensatory stock options, so registration requirements of the Securities Exchange Act of 1934 would not be triggered solely by a company’s compensation decisions; and 
  • Mandate the electronic filing of the information required by Form D using a new online filing system that would be accessible using the Internet and that would automatically capture and tag data items, and revise and update the Form D information requirements.

SEC Chairman Christopher Cox stated “ This focus on capital formation and the removal of obstacles to the growth of smaller companies goes hand-in-hand with our responsibility to protect investors.”

Comments on these proposals should be received by the SEC within 60 days of their publication in the Federal Register.

The full text of the detailed releases concerning these items will be posted to the SEC website as soon as possible.