Resources/ Updates


Top 10 Recs from the Joint Forum on Small Business Capital Formation

Since 1982, the SEC hosts an annual forum focused on the capital concerns of small business. The Final Report of the 2016 Forum is now available.

As mandated by the Small Business Investment Incentive Act of 1980, the “SEC Government-Business Forum on Small Business Capital Formation” gathers to address needless obstacles to small business capital formation. “Each forum seeks to develop recommendations for government and private action to improve the environment for small business capital formation, consistent with other public policy goals, including investor protection.”

The 2016 Government-Business Forum on Small Business Capital Formation was held in Washington, D.C in November. Participants include “small business executives, venture capitalists, government officials, trade association representatives, lawyers, accountants, academics and small business advocates.”

2016 Forum’s Top 10 Recommendations

1. Maintain the monetary thresholds for accredited investors and expand the categories of qualification for accredited investor status based on sophistication levels (education, experience or training, including without limitation persons holding FINRA licenses or CPA or CFA designations, or status as managerial or key employees affiliated with the issuer).

2. Revise the definition of smaller reporting company (SRC) and non-accelerated filer to include an issuer with a public float of less than $250 million or with annual revenues of less than $100 million, excluding large accelerated filers; and to extend the period of exemption from Sarbanes 404(b) for an additional five years for pre- or low-revenue companies after they cease to be emerging growth companies (EGCs) and SRCs.

3. Lead a joint effort with NASAA and FINRA to implement the basic principles of the American Bar Association Task Force on Private Placement Brokers.  Jointly develop a timeframe for regular meetings with benchmarks until a regime of finder and limited intermediary registration and regulation or exemption is achieved.

4.  Adopt rules that preempt from state registration all primary and secondary trading of securities qualified under Regulation A/Tier 2, and all other securities registered with the Commission.

5. Amend Regulation A to: (a) Preempt from state Blue Sky regulation all secondary sales of Tier II securities; (b) Allow companies registered under the Exchange Act (at least business development companies (BDCs, EGCs and SRCs) to utilize Regulation A, with such restrictions as the SEC deems appropriate; and (c) Provide a clearer definition of what constitutes “testing the waters materials” and permissible media activities.

6. Simplify disclosure requirements and costs for SRCs and EGCs with a principles based approach to Regulation S-K, eliminating immaterial info, reducing/eliminating “non-securities” disclosures with a political or social purpose (pay ratio, conflict minerals, Iran disclosures, etc.), making XBRL compliance optional and harmonizing rules for EGCs with those applicable to SRCs.

7. Mandate comparable disclosure by short sellers (or market makers holding short positions) that apply to long investors such as in Schedule 13D.

8. Provide scaled public disclosure requirements (including the use of non-GAAP accounting standards) that would constitute adequate current information for entities whose securities will be traded on secondary market platforms.

9. Revise eligibility requirements for use of Form S-3 to include all reporting companies.

10. Clarify the relationship of exempt offerings in which general solicitation is not permitted—such as in Section 4(a)(2) and Rule 506(b) offerings—with Rule 506(c) offerings involving general solicitation.

Note: The recommendations are solely the responsibility of the Forum participants and do not necessarily reflect the views of the SEC and its staff members.

Related Resources

The Final Report of the 2016 Forum (including 15 Forum recommendations) ~ April 2017

SEC Page on the Government-Business Forum on Small Business Capital Formation

Webcast of Morning Panel Session

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