SEC proposes modernization of smaller company capital raising and disclosure requirements

The U.S. Securities and Exchange Commission has proposed a series of six measures to modernize and improve its capital raising and reporting requirements for smaller companies.

The SEC says that many of the proposals address key recommendations made by the SEC’s Advisory Committee on Smaller Public Companies in its final report.

They include:

• a new system of securities regulation for smaller public companies that would make scaled regulation available to a much larger group of smaller public companies;
• modified eligibility requirements so companies with a public float below $75 million can take advantage of the benefits of shelf registration;
• a new exemption from registration requirements for sales of securities to a newly defined category of “qualified purchasers” in which limited advertising would be permitted;
• shortened holding periods for restricted securities to reduce the cost of capital and to increase access to capital;
• new exemptions for compensatory employee stock options registration requirements would not be triggered solely by a company’s compensation decisions; and
• electronic filing of the form filed by companies making private or limited offerings to ease burdens for filers and make the information filed more readily available.

“This focus on capital formation and the removal of obstacles to the growth of smaller companies goes hand-in-hand with our responsibility to protect investors,” said SEC chairman Christopher Cox. “It’s investors who are injured and whose money is lost when the small businesses in which they invest can’t get affordable access to new capital.”

“As we all recognize, smaller companies are critical players for our capital markets and for the U.S. economy more broadly. By proposing to rationalize the regulations that apply to capital raising and public reporting by smaller companies, as well as by adopting guidance for management evaluations of internal control under SOX 404 in an earlier action today, the commission has again confirmed its commitment to the health and robustness of this important segment of our markets,” said John White, director of the SEC’s Division of Corporation Finance.