Bills
| 3.23.22

Small Business Capital-Raising: More Exemptions and Avoidance of State Regulatory Laws (H.R. 4565)

Do you support or oppose this bill?

What is H.R. 4565?

(Updated July 19, 2017)

Under current Securities and Exchange Commission (SEC) rules, small businesses looking to hold what is known as “Regulation A” status and want to sell $5 million or more worth of securities in any 12-month period must register with the SEC. Such registration is perceived as laborious and expensive. This bill would increase the amount that triggers SEC registration from $5 million to $10 million, allowing many smaller businesses to avoid some regulatory burdens. More on Regulation A status is offered below.

The bill also deals with “blue sky laws”—state laws that regulate the offering and selling of securities and help protect the public from fraud. 40 of the 50 states’ blue sky laws duplicate federal laws. This bill would provide companies the ability to not have to register at the state level by doing so at the federal level.

Finally, the bill would exclude certain shareholders in Regulation A companies from the shareholders cap, allowing companies to have more investors without triggering mandatory SEC registration. 

Argument in favor

Would help small businesses raise capital. Dealing with multiple states’ regulations is burdensome for small companies.

Argument opposed

Substantially weakens investor protections by preempting state regulation and letting too many companies bypass SEC registration.

Impact

This bill chiefly affects companies seeking Regulation A status with the SEC and are looking to have their public offerings be more than $5 million but less than $10 million.

Cost of H.R. 4565

A CBO cost is currently unavailable.

Additional Info

In Detail: 

According to the SEC,

 The principal differences between Regulation A offerings and registered public offerings are:
•  financial statements for a Regulation A offering are simpler and do not need to be audited unless audited financial statements are otherwise unavailable;
 
•  Regulation A issuers do not incur either Exchange Act reporting obligations after the offering or Sarbanes-Oxley Act obligations applicable only to SEC reporting companies, unless the company meets the thresholds that trigger Exchange Act registration;
 
•  companies may choose among three formats to prepare the Regulation A offering circular, one of which is a simplified question-and-answer document; and
 companies may "test the waters" to determine market interest in their securities before going through the expense of filing with the SEC.
Of Note: 

-This bill was one of more than a dozen bills to come out of a May 7th House Financial Services Committee Markup. The other bills are: 

(Photo Credit: Getty/Huffington Post)