As part of its response to the COVID-19 crisis, the U.S. Securities and Exchange Commission (SEC) has announced temporary conditional relief for small companies seeking to raise additional funding through Regulation Crowdfunding offerings. The temporary provisions will expire on Aug. 31, 2020.
A Regulation Crowdfunding offering is when a company offers and sells securities in relatively small investments from a large number of people. Crowdfunding offerings are, in essence, offerings of equity in a business. As such, they must comply with federal securities laws. All Regulation Crowdfunding transactions are required to be facilitated online through an SEC-registered intermediary, which is either a broker-dealer or a funding portal.
The temporary rules, announced on May 4, 2020, are geared toward small, longer-standing companies in order to provide relief from circumstances caused by the COVID-19 pandemic that may be unavailable through other means (e.g., the U.S. Small Business Administration's Payment Protection Program).
In shortening the offering window, allowing the financial statements to be certified in-house and allowing companies to inquire about investment interest prior to preparing full offering materials, the temporary rules offer small companies the ability to allow their customers to invest in their businesses during a time when many companies will not qualify for governmental assistance. In short, the temporary relief can provide small, established businesses with the funds needed to stay afloat during these turbulent times.
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