By Katanga Johnson
WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission (SEC) on Wednesday announced proposals making it easier for firms to raise capital via online platforms before they meet a requirement to register with the agency – a lengthy and costly process.
The SEC hopes the changes to so-called crowdfunding rules would allow smaller companies to access more capital before deciding to go public. However, they may raise worries among some investor advocates who say the current, stricter rules are not enough to encourage robust disclosure.
Under the measures, which are subject to public consultation, the SEC will allow firms to raise $5 million online, rather than the current $1 million, before they have to register.
In a statement, SEC Chairman Jay Clayton said the measures aimed “to address the gaps and complexities in the offering framework that may impede access to capital for issuers.”
The 2012 Jumpstart Our Business Startups (JOBS) Act empowered the SEC to create a regulatory regime for crowdfunding. It also relaxed securities regulations to help encourage small companies to go public with the idea of boosting the economy following the 2007-2009 global financial crisis.
Wednesday’s measures would also raise the maximum share offering limit over a single year to $70 million from $50 million for small firms that qualify under a registration exemption known as Regulation A.
The proposal would further permit issuers to advertise as a means of sounding out prospective investors before deciding whether to register with the SEC for any exemption they may use for the sale of private securities.
The SEC and industry lawyers say the existing JOBS Act exemptions are under-used and that the SEC’s proposed revisions would hopefully make them more appealing to a new swath of companies and investors.
“The SEC’s proposed regulation to make it easier for companies to raise capital in the private markets represent an opportunity to get some real changes made to enhance capital formation and give retail investors more opportunities to invest in startups,” Dina Ellis Rochkind of the New York law firm Paul Hastings LLP said in an email.
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