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Small Business Advocate Urges Capital Raising Relief

On March 4, 2020, the SEC published proposed rule changes to harmonize, simplify and improve the exempt offering framework.  The proposed rule changes indicate that the SEC has been listening to capital markets participants and is supporting increased access to private offerings for both businesses and a larger class of investors.  Together with the proposed amendments to the accredited investor definition (see HERE), the new rules could have as much of an impact on the capital markets as the JOBS Act has had since its enactment in 2012.

I’ve written a five-part series detailing the rule changes, the first of which can be read HERE.  My plan to publish the five parts in five consecutive weeks was derailed by the coronavirus and more time-sensitive articles on relief for SEC filers and disclosure guidance, but will resume in weeks that do not have more pressing Covid-19 topics.

On April 2, 2020, the SEC Small Business Capital Formation Advisory Committee held a special meeting (remotely) to discuss the potentially severe and immediate impact of Covid-19 on small businesses.  Although the Committee did not make specific rule-change recommendations, it did urge the SEC to take immediate action to ease online private capital raising rules to assist businesses in accessing capital quicker and from a larger body of investors.

Committee members argued for an ease in crowdfunding restrictions to allow small businesses to quickly access potential investors.  Commissioner Peirce agreed with the approach, noting that allowing companies to raise funds over the internet is in line with current social distancing initiatives.  Pierce suggested allowing a new micro-offering exemption for quick access to capital with few restrictions.

SEC Chair Jay Clayton gave opening remarks, stressing the unprecedented challenges faced by small businesses.  Although he also offered no specific solutions, he did stress the importance of preserving the flows of credit and capital in our economy to better fight and ultimately recover from Covid-19.

Although no one brought it up, I think that quick rules which allow the payment of finder’s fees to unregistered individuals and entities would be extremely beneficial, and could be accomplished while maintaining investor protections.  Many small business owners (or even larger business owners) simply do not even know where to begin when it comes to capital raising, and many are uncomfortable asking for money.

I would advocate for rules that include (i) limits on the total amount finders can introduce in a 12-month period; (ii) antifraud and basic disclosure requirements that match issuer responsibilities under registration exemptions; and (iii) bad-actor prohibitions and disclosures which also match issuer requirements under registration exemptions.

I would even advocate for a potential general securities industry exam for individuals as a precondition to acting as a finder, without related licensing requirements.  For example, FINRA, together with the SEC Division of Trading and Markets, could fashion an exam similar to the FINRA Securities Industry Essentials Exam for finders that are otherwise exempt from the full broker-dealer registration requirements.

New C&DI on Filing Deadlines

As I wrote about in my last two blogs, the SEC has provided relief such that periodic filings that would have been due from between March 1 and July 1, 2020 can avail themselves of a 45-day extension (see HERE).  In order to qualify for the extension, a company must file a current report (Form 8-K or 6-K) explaining why the relief is needed in the company’s particular circumstances and the estimated date the report will be filed.  In addition, the 8-K or 6-K should include a risk factor explaining the material impact of Covid-19 on its business.   The Form 8-K or 6-K must be filed by the later of March 16 or the original reporting deadline.

On April 6, 2020, the SEC issued a new C&DI explaining how the extension impacts a company that excludes particular information in its Form 10-K intending to incorporate that information in its subsequently filed proxy or information statement.  In particular, a Form 10-K allows a company to include Part III information in its subsequently filed proxy or information statement for its annual meeting as long as the proxy or information statement is filed within 120 days of the end of the fiscal year.  In the event that a proxy or information statement containing the Part III information is not filed by the 120th-day deadline, then an amended Form 10-K must be filed by that date with the omitted information.

The SEC confirms that if a company is unable to file the Part III information by the 120th-day deadline, it may avail itself of the 45-day extension for companies affected by the Covid-19 crisis as long as the deadline is within the relief period (March 1 through July 1, 2020).

A company that timely filed its annual report on Form 10-K without relying on the Covid-19 Order should furnish a Form 8-K with the disclosures required in the Order by the 120-day deadline. The company would then need to provide the Part III information within 45 days of the 120-day deadline by including it in a Form 10-K/A or definitive proxy or information statement.

A company may invoke the Covid-19 Order with respect to both the Form 10-K and the Part III information by furnishing a single Form 8-K by the original deadline for the Form 10-K that provides the disclosures required by the Order, indicates that the company will incorporate the Part III information by reference, and provides the estimated date by which the Part III information will be filed. The Part III information must then be filed no later than 45 days following the 120-day deadline.

A company that properly invoked the Covid-19 Order with respect to its Form 10-K by furnishing a Form 8-K but was silent on its ability to timely file Part III information may (1) include the Part III information in its Form 10-K filed within 45 days of the original Form 10-K deadline, or (2) furnish a second Form 8-K with the disclosures required in the Order by the original 120-day deadline and then file the Part III information no later than 45 days following the 120-day deadline by including it in a Form 10-K/A or definitive proxy or information statement.

The Author

Laura Anthony, Esq.

Founding Partner

Anthony L.G., PLLC

A Corporate Law Firm


Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service.  The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.

Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.

Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.

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