The Securities and Exchange Commission released the report from the August 2019 Government-Business Forum on Small Business Capital Formation. The Annual Forum provides an opportunity for market participants to meet and discuss concerns regarding the regulatory framework affecting capital formation for small businesses, including smaller reporting companies and mid-cap companies. Each year, the recommendations included in the report from the Forum are considered by the SEC in its rulemaking process.
The report sets forth the recommendations by type of company. In the context of small, emerging businesses, the principal recommendations, in order of priority, were for the SEC to: revise the accredited investor definition to add a sophistication test to the natural person prong, which would be in addition to the net worth and net income thresholds, as an alternative means of qualification; clarify and simplify the exempt offering rules; review the SEC and FINRA rules relating to finders; expand access to private placements through new or alternative investment vehicles in which non-accredited investors would be able to participate; revise Regulation Crowdfunding in order to allow accredited investors to make unlimited investments and to raise the overall offering threshold. For mature and later stage private companies, the attendees recommended that the SEC: provide federal preemption for all resales of securities sold in a Tier 2 Regulation A offering provided that the issuer is current in its reporting obligations; address the rules relating to finders; provide Investment Company Act exemptions for diversified funds selling securities under Regulation Crowdfunding, Regulation A, and Regulation D; provide a new offering exemption for investments of less than $25,000 for up to 35 non-accredited investors subject to certain disclosure requirements. For small reporting companies, the attendees recommended that the SEC: reform the rules governing the proxy process; increase the disclosure requirements for holdings of public company securities by, among other things, mandating disclosure of short interests and modifying the Section 13 reporting rules; align the definition of non-accelerated filer with the definition of smaller reporting company; and require additional disclosures from promoters and modernize transfer agent regulation.