2021 SEC Regulation Updates | Webinar

In this webinar Nate Dodson breaks down the new 2021 SEC Regulation changes and how you can take advantage of these new opportunities to grow your business.

 As an investor, knowledge is power. Especially, if you’re an investor interested in the securities market. It will save you from many problems, and in some ways, it may present you with new opportunities. A perfect example of positive changes is you can now raise more money while relying on exemptions under Regulation A, Regulation CF, and Regulation D. In this article, we delve into Regulation CF and the significant changes (positive) incorporated into it. We will also look into the changes in Integration Rules and clarify some general solicitation exemptions.

General Overview of the Exemptions

Regulation CF

Under Regulation CF, the maximum amount one can raise is $5 million. One “advantage” of Regulation CF is that general solicitation is allowed. Meaning the individual or entity can advertise to prospective investors (accredited and unaccredited), and they can decide whether to invest or not. Prospective investors should fill Form C and file it with the SEC. Whereas unaccredited investors are allowed, they should not exceed 10% of the total investors.

Regulation A

Under Regulation A, the capital limit is between $20 million to $75 million. And like Regulation CF, you can raise capital from both accredited and unaccredited investors through general solicitation. Prospective investors should fill Form A-1 and file it with the SEC. Although unaccredited investors are allowed, they should not exceed 10% of the total number of investors.

Initially, the limit was $50 million, but they bumped it up to 75 million. For the sponsors and the prior interest holders, they used to be able to sell your own shares up to 15 million dollars. Now out of that $75 million limit, you can sell up to $22 500 000 in worth and value of your shares to the public.

Regulation D (506 (b) and 506(c))

Under 506 (c), general solicitation is allowed, but you can only raise capital (unlimited) from accredited investors. When an accredited investor has been verified within the past five years, there is no reason to think it’s changed.

However, under Rule 506 (b), general solicitation is prohibited, but you can raise capital from both accredited and unaccredited investors (unaccredited investors limited to 35). Prospective investors should fill Form D and file it with the SEC. Under this rule, the SEC now allows advertisements through seminar series (i.e., you can conduct seminars in higher learning institutions, incubator groups, and Angel Investor Groups). However, the SEC prohibits paying seminar promoters commissions (however, the promoter can charge an administrative fee) or charge attendees.

REGULATION CF: An In-depth Discussion on The Changes and Process

We’ll run you through some important changes, then delve into details. This is what you should know:

  1. a Regulation CF offering should be placed through a FINRA  registered crowdfunding portal
  2. There is a new $ 5 million dollar limit from the initial $1 million dollars.
  3. The offering is open to both accredited and unaccredited investors
  4. All types of businesses can advance a Regulation CF offering.

Changes on rules governing investors

  1. Initially, an unaccredited investor with a net worth of less than $107,000 could only invest $2,200 or 5% of their lesser annual income or net worth. However, this has since changed, and unaccredited investors can invest 5 % of their greater annual income or net worth.
  2. Some investors may have a net worth of greater than $107,000 but are not accredited. They, too, can now invest 10% of their greater annual income or net worth.
  3. Accredited Investors can Invest UNLIMITED amounts.

Regulation CF process

  • First, you have to kind of develop and strategize your plan. What are you raising money for? Are you allowed to raise money through Regulation CF?
  • Then, you have to decide on which crowdfunding portal you want to work with. You are allowed to utilize your own crowdfunding portal. For better results, you should consult an experienced crowdfunding lawyer. They will discuss your goals, your backgrounds, what kind of investors you have been working with and targeting, and what kind of crowdfunding portal or model really fits your investor needs and fits your business needs. They will advise on (if you want to create your own portal) advise on the best companies to work with.
  • The final step is to file Form C with the SEC.

There are some financial statement requirements that have to be met. The type of financial statements which you have to provide will depend largely on the amount of money you want to raise. If you want to raise figures greater than $1 million, you will be required to get audited financials. If the figure s less than $1 million, you will be required to present reviewed financials.

Integration: How does it affect offerings under Regulation CF

Integration rules are meant to deter issuers from improperly avoiding the registration of securities by the SEC by dividing one single offering to create multiple offerings. Dividing the offerings would make them eligible for exemptions under the Securities Act, albeit illegally.

However, the SEC allows investors to legally integrate offerings provided they comply with SEC requirements on offerings. For example, if you opt to go for a 506 (c) offering, you could still make a Regulation CF offering, as long as you’re meeting all the requirements across the board. That is, you’re only getting capital from accredited investors(because it is allowed in both Rule 506 (c) and Regulation F), and the amount raised is not more than $5 million (because this is a requirement in Regulation CF and for Rule 506 (c) you can raise an unlimited amount of capital). If the capital raised is more than $5 million dollars, then the safe harbor rule will not apply, and you will have committed an offense in the eyes of the SEC.

NOTE:

  1. If no advertising is allowed, an offering will not be integrated with an advertising permitted offering if there is a reasonable belief that:
    1. The investor was not solicited through general solicitation or,
    2. There was a prior relationship between the issuer and investor before the general solicitation offering was made.
  2. If advertising is allowed, then the offerings must meet the requirements of both exemptions.

Safe Harbor Rule: Ending an offering

As of March 2021, offerings will not be integrated if the subsequent offering starts at least 30 days after termination or completion (ending) of a prior offering.

What does it mean to end an offering?

  1. Ending an offering could mean that you already funded it – It doesn’t have to be with money is already deposited in the bank, even when you have a binding commitment (i.e., through subscription documents, and agreements, etc.)
  2. If you cease efforts to further funding an offering, you ended the offering.
  3. If the crowdfunding portal terminates or removes the offering, the offering is ended.

Testing The Waters

You are allowed to test the water before. However, there are rules to be followed.

  1. It has to be before the offer is accepted.
  2. You should not accept any money. This means that no binding agreements should be entered into by the parties.
  3. You are not allowed to accept any investment offers.

The process of making offerings has not changed; the same case applies to our resolve to serve you. Our work is, through your cooperation, to help you complete the Securities offering process in the shortest time possible. 

Follow along with the Rules and Regulations for the SEC.

Next, check out More Prospects, More Partners, More People to gain insight on building the ultimate network.

You may also like How to Start a Real Estate Crowdfunding Platform