At the meeting held on June 3, 2015, in Washington, D.C., the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies (“Advisory Committee”) recommended that the Securities and Exchange Commission (“SEC”) formalize the so-called Section 4(a) (1-1⁄2) exemption, a legal construction that has developed over time based on case law. The exception has not been specifically established by any written statute nor formally adopted by SEC regulation, although in no-action letters and interpretative releases the SEC has recognized it as being within the intended purpose of the Securities Act. In its essence, Section 4(a) (1-1/2) operates as a hybrid exemption combining elements of exemptions set forth in Sections 4(1) and Section 4(2) of the Securities Act. In practice, this exemption has been increasingly invoked to allow resale of privately issued securities by shareholders who are not able to rely on Securities Act Rule 144. Formalizing the Section 4(a) (1-1/2) exemption is expected to increase both liquidity and certainty of execution of such transactions, which in turn would positively impact private company capital formation and job creation.
Please read the Advisory Committee’s recommendation for more information.