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SEC Proposes to Improve Existing Exempt Offering Framework


SEC Proposes to Improve Existing Exempt Offering Framework

According to a press release published by the U.S. Securities and Exchange Commission on 4 March 2020, a proposal was made to amend for ‘harmonizing, simplifying and improving’ the exempt offering framework. The ultimate goal of the proposal is to give a boost to capital formation and increase the current investment opportunities without compromising investor securities.

What Does the Proposal Seek to Amend? 

Expanding the definition of an accredited investor:

Presently, an accredited investor is the one whose net worth is $1 million or an entity controlling more than $5 million in assets. SEC seeks to enlarge this definition for people who have professional knowledge or experience.

Increasing the maximum amount that can be raised by non-accredited investors:

The new rule proposes to increase the maximum amount that can be raised by non-accredited investors. The suggested value change is from $5 million to $10 million in a period of twelve months.

Reducing the number of ‘safe harbors’:

The total number of exemptions or ‘safe harbors’ present right now is ten, and all of them have varied requirements that can prove to be ‘confusing and difficult for issuers to navigate.’ The new rule proposes only four non-exclusive ‘safe harbors.’

Implementing a general rule for the movement of users from one exemption to another and ultimately to a registered offering.

Increasing the present offering limits and also bringing changes in some of the existing individual investment limits.

Harmonizing a few disclosure, eligibility requirements and bad-actor disqualification provisions for reducing the differences between the exemptions.

Improve the rules that govern the interaction between the investors and the issuers to make them clearer and consistent.

SEC said that these rules ‘reflect a comprehensive retrospective review of the patchwork system built over many decades’. 

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