Politicians Discover The Need for Small Business Registration Exemptions

I have been writing for at least 15 years about the need for small business exemptions from the registration requirement of the Securities Act. I was not alone; many other people have pointed out how securities regulation strangles small-business entrepreneurship. But, with exception of a brief period of change at the SEC in the early 1990s, nothing has happened.

It now appears that change is coming. Politicians have "discovered" the problem and it is becoming increasingly clear that some action is going to be taken to exempt additional small business offerings. Here are some of the most recent developments:

• As I indicated in an earlier post, President Obama has come out in support of both a “crowdfunding” exemption from SEC registration requirements for firms raising less than $1 million (with individual investments limited to $10,000 or 10% of investors’ annual income)” and increasing the offering amount of the Regulation A exemption from $5 million to $50 million.
• Senators Jon Tester (D-Mont.) and Pat Toomey (R-Pa.) have introduced a bill to require the SEC to exempt securities offerings of up to $50 million. Issuers would be required to file audited financial statements with the SEC annually. The bill would also require the Comptroller General to study the impact of state blue sky law on Regulation A offerings.
• A subcommittee of the House Committee on Oversight and Government Reform just held hearings on the possibility of an exemption for crowdfunded offerings. A video of those hearings is available here.
• Meredith Cross, the director of the SEC’s Division of Corporate Finance, testified at the hearings that she believes the SEC will consider crowdfunding “in the near future.”
• Congressman Patrick McHenry (R-N.C.), the chair of the subcommittee that held the hearings, has introduced a bill that would exempt crowdfunded offerings from Securities Act registration. (A copy of that bill is here.)

It’s not clear what’s going to happen, or whether the changes will really benefit small businesses very much. If the current proposals are any indication of what is to come, I will probably spend the next fifteen years explaining why the new exemptions are still too costly for very small businesses. But some change seems inevitable.

-Steve Bradford