SEC Proposes to Increase Rule 504 Offering Limits to Create Another Crowdfunding Exemption
The SEC has issued a rule proposal that would increase the aggregate amount of securities that may be offered and sold in any twelve-month period pursuant to Rule 504 from $1 million to $5 million and to disqualify certain bad actors from participation in Rule 504 offerings.
Rule 504 permits eligible issuers to offer and sell securities to an unlimited number of persons without regard to their sophistication, wealth or experience and, in certain circumstances, without delivery of any specified information. In other words, it’s another potential crowdfunding exemption.
The SEC believes the rule change would create a larger federal exemptive framework for state regulators to tailor and coordinate among themselves state specific requirements for smaller offerings by smaller issuers that are consistent with their respective sovereign interests in facilitating capital formation and the protection of investors in intrastate and regional interstate securities offerings. Increasing the offering limit from $1 million to $5 million may also make the Rule 504 exemption more attractive to start-up companies seeking capital financing, as compared to alternative financing methods, as the legal and accounting expenses of the offering may be offset by the larger gross proceeds of the offering to the issuer.
In conjunction with the proposed increase to the Rule 504 aggregate offering amount limitation, the SEC is also proposing to adopt provisions that would disqualify certain bad actors from participation in offerings conducted pursuant to the exemption. The SEC believes that the proposed disqualification provisions, which are substantially similar to related provisions in Rule 506 of Regulation D, would create a more consistent regulatory regime across Regulation D that would benefit investors in Rule 504 offerings with increased protections. The SEC also believes that its proposed rule amendments may bolster efforts among the states to enter into, or revise existing, regional coordinated review programs that are designed to increase efficiencies associated with the registration of securities offerings in multiple jurisdictions without increasing risks to investors.
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