The Securities and Exchange Commission recently published the Final Report from its Forum on Small Business Capital Formation, held in November 2009. The Small Business Investment Incentive Act of 1980 requires the SEC to host an annual forum that focuses on the capital formation concerns of small businesses. The purposes of the forum are to provide a platform for small business to highlight perceived unnecessary impediments in the capital raising process and to develop recommendations for government and private action to improve the environment for small business capital formation. Participants in the forum, consisting of members of various business and professional organizations, developed and ranked 26 securities law recommendations, including the following:
- Relax Restrictions on Private Placements—Forum participants recommended that the SEC consider a variety of new rules that would ease certain restrictions applicable to private placements, including recommendations that the SEC: (1) adopt new exemptions from registration that would permit general solicitation in transactions with purchasers who do not need the protections of the Securities Act of 1933 (the Securities Act); (2) relax the prohibitions against general solicitation in limited offerings (under Regulation D) to permit issuers to “test the waters” in certain circumstances; (3) allow “private placement brokers” to raise limited amounts of capital through private placements of issuers’ securities offered solely to accredited investors (with full disclosure of any broker’s compensation); (4) increase the $5 million ceiling under Regulation A and 500 shareholder threshold under Section 12(g) of the Securities Exchange Act of 1934 in order to allow issuers to engage in general solicitation for larger aggregate amounts of capital without registration under federal securities law; (5) shorten the integration safe harbor in limited offerings (under Regulation D) from six months to 90 days; (vi) adopt new rules that would extend the current exemption for qualified institutional buyers (QIBs) under Rule 144A beyond QIBs and permit additional trading in privately placed securities by investors who do not require the protection of Securities Act registration; and (6) adopt new accreditation standards for participation in private placements.
- Reduce Compliance Obligations of Smaller Reporting Companies—Participants also made a number of recommendations that would ease reporting burdens for smaller reporting companies, including recommendations that (1) the SEC not oppose proposed legislation that would exempt smaller reporting companies from the auditor attestation requirements under Section 404(b) of the Sarbanes Oxley Act of 2002; (2) increase the public float threshold for being a smaller reporting company from $75 million to $250 million; (3) amend the definition of “smaller reporting company” to include issuers with less than $100 million annual revenue; (4) postpone the June 15, 2011, implementation of eXtensible Business Reporting Language for smaller reporting companies to the extent technological difficulties persist; and (5) reduce the “notice and access” advance mailing requirement for smaller reporting company proxy statements from 40 days to 30 days.
- Increase Thresholds for Exchange Act Registration—Participants also recommended that existing thresholds for requiring issuers to register and file periodic reports under the Securities Exchange Act of 1934 (the Exchange Act) be modified to increase the total assets test requiring public company registration under Section 12(g) from the current $10 million level to an amount exceeding $100 million and to exclude accredited investors, large accredited investors and qualified institutional buyers from the 500 shareholder of record threshold under Section 12(g) of the Exchange Act.
Although the SEC hosted the Forum on Small Business Capital Formation, it does not endorse any of the recommendations developed by forum participants. To view the Final Report from the Forum on Small Business Capital Formation, including a complete list of the recommendations developed by forum participants, click here.
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