By Baker Tilly Accounting Specialists
As startup and smaller companies continue to face significant COVID-19 related challenges, the SEC extended a temporary relief from certain regulatory requirements to expedite the crowdfunding process. Among other things, companies do not have to get an independent accountant’s review of the financial statements for certain amounts of offerings under Regulation Crowdfunding.
The temporary relief—which is in the form of an interim final rule—applies to securities offerings initiated under Reg CF, and it now runs to Feb. 28, 2021, according to Release No. 33-10829, Temporary Amendments to Regulation Crowdfunding; Extension, published on August 28, 2020. The amendments are effective through Sept. 1, 2021.
When the SEC first provided this expedited process on May 4 in Release No. 33-10781, Temporary Amendments to Regulation Crowdfunding, the relief was set to end on Aug. 31.
“The temporary final rules provide flexibility for eligible issuers to assess interest in a Regulation Crowdfunding offering prior to preparation of full offering materials, and then once launched, to close such an offering and have access to funds sooner than would be possible in the absence of the temporary relief,” the SEC said in Release No. 33-10829.
Reg CF allows private companies to raise as much as $1.07 million from the public each year through registered online portals or broker-dealers. An individual with an income or net worth below $107,000 can invest $2,200 per year in crowdfunding deals, or 5% of the lesser of their net worth or income. Someone above that wealth threshold can invest 10% of the lesser of their income or net worth. No investor can put more than $107,000 per year into crowdfunded offerings.
The release has a table that explains who is eligible for the relief, the existing Reg CF, and the temporary amendments.
To take advantage of the relief, a company must meet enhanced eligibility requirements and disclose to investors that it is relying on the SEC’s relief. The exact process and conditions to use the relief are spelled out in the release.
COVID-19 is a highly contagious disease caused by a novel coronavirus, and efforts to slow the transmission have had devastating impact on the economy, with layoffs, scaled back business operations and bankruptcies. Small businesses have been hit especially hard, and they have been facing challenges raising needed capital.