Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, June 13, 2008

Final Report of the 2007 SEC Govt-Business Forum on Small Business Capital Formation

The Small Business Investment lncentive Act of 1980 mandates that the SEC host an annual forum that focuses on the capital formation concerns of smalll business. A major purpose of the Forum is to provide a platform for small business to highlight perceived unnecessary impediments in the capital-raising process and address whether they can be eliminated or reduced. Each Forum seeks to develop recommendationsfor governmental and private actions to improve the environment for small business capital formation, consistent with other public policy goals, including investor protection. The 2007 Forum was held on September 24,2007.  Its Final Report, including recommendations, was just published.  Here are the recommendations of the securities regulation breakout groups.

1. We support the Commission's Section 12(g) rule proposal and recommend that it be clarified to ensure that employee option holders are not considered within the definition of holders of record for purposes of the limitation under Exchange Act Section 12(g).
2. We support application of uniform disqualification provisions regarding all offerings seeking to rely on ReguIation D.
3. We support the Commission's proposal to shorten the integration safe harbor in Regulation D from six months to 90 days.
4. We support addition of the proposed $750,000 investment-based test as an alternative means of qualifying as an "accredited investor,"as defined in Rule 501 of Regulation D.
5. We support the Commission's proposed new Rule 507 of Regulation D establishing a new exemption permitting limited advertising.

6. We recommend that the Commission take the lead in adopting rules, in coordination with the states, to create a limited federal registration exemption and simplified system of state registration and regulation for M&A and business brokers who act as intermediaries and advisors in the purchase and sale of existing businesses.
7. We recommend that the Commission adopt rules recommended by the 2005 Private Placement Broker-Dealer Task Force Report of the American Bar Association to facilitate capital raising by small business owners, as well as prospective buyers, to fund smalI businesses.
8. We recommend that "private placement brokers" be allowed to raise capital through private placements of an issuer's securities with one or more "accredited investors" in amounts per issuer of up to 10 percent of the investor's net worth (excluding their primary residence), with full written disclosure of the broker's compensation, and in aggregate amounts of up to at least $10 million pcr issuer, periodically adjusted for inflation.
9. Eliminate the Proposed 20 Percent of Public Float Ceiling on Form S-3/F-3 for Registrations by Smaller Reporting Companies.
10. Expand the Availability of Form S-3 Resale Registration to Unlisted Reporting Companies.
11. Simplify Rule 144 Tolling Provisions.
12. Improve the Quality of and Access to Public Information about Non-Reporting Companies.

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