Pub. 1 2021 Issue 1

26 | The Show-Me Banker Magazine RECENT CHANGES TO EXEMPT SECURITIES OFFERINGS By Larry K. Harris, Polsinelli On Nov. 2, 2020, the U.S. Securities and Exchange Commission (“ SEC ”) issued final rules that became effective at the start of 2021. These rule changes affected many of the regulations per- taining to the offering of securities under various “exemptions.” Some of the more important changes are discussed below. In this discussion, those raising capital are referred to as “issuers” because they issue stock or other securities to investors as the means of raising capital. Exempt offerings are key to capital raising for small issuers and startups. The basic rule under the Securities Act of 1933 (the “ Securities Act ”) is that any issuer offering to sell its securities must register that offering with the SEC unless the offering is exempt from the registration requirements. While the Securi- ties Act itself provides for some offerings, and even some types of securities, to be exempt from registration, the exemptions issuers have found to be most useful are those that the SEC has provided under its authority to promulgate regulations estab- lishing exemptions. By far, the most commonly used set of exemptions was created in the early 1980s when the SEC adopted Regulation D. As initially designed, there were three versions of exempt offerings; one each established under Rule 504, Rule 505 and Rule 506. In 2016 the SEC revised Regulation D, enlarging the amount of capital that can be raised under Rule 504 to $5 million, eliminating Rule 505 (which was almost never used), and liberalizing Rule 506 by cre- ating two tracks — one for private offerings and one for offerings using public (general) solicitations. No dollar limit on Rule 506 offerings exists, as the SEC relies instead on methods of offering, limits on the number of “non-accredited investors,” and mandat- ed disclosures to provide the necessary protection to investors. In addition to revising certain aspects of Regulation D, the 2020 amendments also addressed several other exemptions from registra- tion. Among the more important is a revitalized Regulation A. After the adoption of Regulation D in the 1980s, the cumbersome, expen- sive and slow process under Regulation A was mostly abandoned by issuers. Regulation A was revised in 2015, in response to Congress’