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US Securities and Exchange Commission

House Bill Would Create New ‘Micro-Offering’ Exemption

Bill Flook  Editor, Accounting and Compliance Alert

Bill Flook  Editor, Accounting and Compliance Alert

The top Republican on the House Financial Services Committee on September 30, 2021, introduced legislation to create a new “micro-offering” exemption under the Securities Act of 1933 that would allow entrepreneurs to raise as much as $250,000 while avoiding the disclosure requirements that accompany other exemptions.

H.R. 5458, the Small Entrepreneurs’ Empowerment and Development (SEED) Act of 2021, is sponsored by Rep. Patrick McHenry of North Carolina. Signing on as cosponsor is Rep. Tom Emmer, a Minnesota Republican.

McHenry, in a statement, said the measure would “not only help our small businesses rebuild after bearing the brunt of COVID-19, but also create more jobs in their communities.”

“This simple and streamlined micro-offering exemption will reduce barriers to capital formation for these entrepreneurs, many of which need different financing options than what is provided by traditional banks,” McHenry said in the statement. “Small businesses are the cornerstone of our communities, and we should provide them with every opportunity to succeed.”

McHenry had proposed similar legislation last year at the outset of the Covid-19 pandemic.

The Securities Act contains a series of exemptions that allow a company to raise capital without being subjected to the expensive and complex filing requirements of a registered offering. Those include the exemptions found in Regulation DRegulation A, and Regulation Crowdfunding (CF), all of which carry their own distinct disclosure requirements. In some cases, those filing requirements are minimal – such as Form D required under Reg D exemptions – while other exemptions carry more extensive disclosure and accounting requirements.

Under the bill, a startup company could raise the funds “free of mandated disclosures or offering filings,” but would still be subject to anti-fraud and bad actor disqualification requirements.

 

This article originally appeared in the October 06, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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