The Securities and Exchange Commission (“SEC”) recently announced that it will ease its crowdfunding regulations in light of the impact of COVID-19 on small businesses. The amended rules will be in effect through August 31, 2020.
The SEC set forth temporary rules that exempt qualifying small businesses from complying with certain requirements of Regulation Crowdfunding (“Reg CF”) with the objective of expediting the offering process. Qualifying small businesses include those established at least 6 months prior to the commencement of the offering who are looking to use crowdfunding as means to fill a funding gap caused by the global pandemic.
The temporary relaxing of Reg CF is a boon for small business hoping to launch an offering on a tight timeline. For instance, the SEC is now permitting small businesses to initiate the offering even if they initially omitted financial statements from their Form C; in addition, the issuer may begin selling securities as soon as the issuer has received binding investment commitments covering the target offering amount, rather than waiting the standard 21 day-period.
To take advantage of the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief.