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SEC Harmonizes and Improves “Patchwork” Private Offering Framework

On November 2, the SEC adopted amendments[1] designed to harmonize and simplify the existing, complicated framework of private offering exemptions—the primary method by which private companies raise capital. The amendments incorporate feedback received by the SEC following its June 2019 concept release[2] and March 2020 proposing release[3] on the topic, as well as other feedback, including recommendations of the Commission’s advisory committees and the SEC’s Government-Business Forum on Small Business Capital Formation. SEC Chairman Jay Clayton stated that the amendments address “inefficiencies in the context of a more rational framework that will facilitate capital formation for small and medium-sized businesses and benefit investors for years to come.”[4]


Emerging companies often use the exempt offering framework under the Securities Act to raise capital for a new business or to fund their businesses’ growth. These exempt offerings are often a critical step in the company’s growth, and since the framework of exemptions has evolved piecemeal over multiple legislative and regulatory amendments, navigating the complex exempt offering framework has been challenging for private companies.

In general, the amendments:

  • “Establish more clearly, in one broadly applicable rule, the ability of issuers to move from one exemption to another;
  • increase the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings, and revise certain individual investment limits;
  • set clear and consistent rules governing certain offering communications, including permitting certain ‘test-the-waters’ and ‘demo day’ activities; and
  • harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions.”[5]

Amendment Highlights


Concerns about integration of private offerings arise when a company is using more than one private offering exemption in parallel (or in close time proximity). Because different exemptions have different compliance requirements, if the two offerings were to be “integrated,” they could fail to satisfy all the requirements for the exemption and compromise the company’s exemption from the registration requirements of the Securities Act.

The amendments establish a new integration framework that provides a general principle-based approach that looks to the particular facts and circumstances of two or more offerings, replacing a traditional five-factor test first articulated by the SEC in 1962.[6] The offerings would not be integrated based on the analysis of whether the company can establish that each offering either complies with the registration requirements of the Securities Act or that an exemption from registration is available for the particular offering. In addition to the principle-based approach, the amendments also provide four non-exclusive safe harbors from integration.[7]

Offering and Investment Limits

The SEC is amending the current offering and investment limits for certain exemptions.

  • For Regulation A, the amendments (i) raise the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million; and (ii) raise the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million.
  • For Regulation Crowdfunding, the amendments (i) raise the offering limit in Regulation Crowdfunding from $1.07 million to $5 million; (ii) amend the investment limits for investors in Regulation Crowdfunding offerings by (x) removing investment limits for accredited investors and (y) using the greater of their annual income or net worth when calculating the investment limits for non-accredited investors; and (iii) extend for 18 months the existing temporary relief providing an exemption from certain Regulation Crowdfunding financial statement review requirements for companies offering $250,000 or less of securities in reliance on the exemption within a 12-month period.
  • For Rule 504 of Regulation D, the amendments raise the maximum offering amount from $5 million to $10 million.

“Testing-the-Waters” and “Demo-Day” Communications

The amendments address some long-standing issues presented with the meaning of “general solicitation” and its application to certain events, including “testing-the-waters” activities and “demo days” by:

  • permitting a company to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities;
  • permitting Regulation Crowdfunding issuers to “test-the-waters” prior to filing an offering document with the Commission in a manner similar to current Regulation A; and
  • providing that certain “demo day” communications will not be deemed general solicitation or general advertising.

Regulation Crowdfunding and Regulation A Eligibility

The amendments establish rules permitting the use of certain special purpose vehicles functioning as a channel for investors to facilitate investing in Regulation Crowdfunding companies. The amendments also impose eligibility restrictions on the use of Regulation A by companies that are delinquent in their Exchange Act reporting obligations.

Other Improvements

The amendments also harmonize certain provisions between exemptions by:

  • changing the financial information that must be provided to non-accredited investors in Rule 506(b) private placements to align with the financial information that issuers must provide to investors in Regulation A offerings;
  • adding a new item to the non-exclusive list of verification methods in Rule 506(c);
  • simplifying certain requirements for Regulation A offerings and establishing greater consistency between Regulation A and registered offerings; and
  • harmonizing the bad actor disqualification provisions in Regulation D, Regulation A, and Regulation Crowdfunding.

Next Steps

The final amendments will become effective 60 days after publication in the Federal Register, except for the extension of the temporary Regulation Crowdfunding provisions, which will be effective upon publication in the Federal Register.



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