SEC Updates JOBS Act Amendments Including Reg CF Funding Cap

The SEC has announced it has adopted amendments to increase the amount of money companies may raise under Reg CF or retail crowdfunding. Initially, Reg CF capped the amount allowable for issuers to $1 million. The SEC has adjusted the amount for inflation and increased the funding limit to $1.07 million. The threshold for investor limits was correspondingly increased in a similar fashion.

While the limit on Reg CF was slightly increased there is a movement in Congress seeking to raise the cap to perhaps $10 million, thus making the exemption more palatable for a wider range of issuers.

The funding cap, along with other limitations, have hobbled the utilization of the Reg CF as many issuers continue to utilize Reg D as it is less costly for companies raising money.

The SEC also approved amendments that adjust for inflation a threshold used to determine eligibility for benefits offered to “emerging growth companies” (EGCs) under the JOBS Act.

“Regular updates to the JOBS Act, as prescribed by Congress, ensure that the entrepreneurs and investors who benefit from crowdfunding will continue to do so,” commented SEC Acting Chairman Michael S. Piwowar. “Under these amendments, the JOBS Act can continue to create jobs and investment opportunities for the general public.”

The SEC is required to make inflation adjustments to certain JOBS Act rules at least once every five years after it was enacted on April 5, 2012.  In addition to the inflation adjustments, the SEC adopted technical amendments to conform several rules and forms to amendments made to the Securities Act of 1933and the Securities Exchange Act of 1934 by Title I of the JOBS Act.

The Commission approved the new thresholds March 31. They will become effective when they are published in the Federal Register.

Section 101 of the JOBS Act added new Securities Act Section 2(a)(19) and Exchange Act Section 3(a)(80) to define the term “emerging growth company” or EGC.  Pursuant to those sections, every five years the SEC is directed to index the annual gross revenue amount used to determine EGC status to inflation to reflect the change in the Consumer Price Index for All Urban Consumers (“CPI-U”) published by the Bureau of Labor Statistics. 

To carry out this statutory directive, the SEC has adopted amendments to Securities Act Rule 405 and Exchange Act Rule 12b-2 to include a definition for EGC that reflects an inflation-adjusted annual gross revenue threshold. 

The JOBS Act also added new Securities Act Section 4(a)(6), which provides an exemption from the registration requirements of Section 5 under the Securities Act for certain crowdfunding transactions.  In October 2015, the SEC promulgated Reg CF to implement that exemption.  Sections 4(a)(6) and 4A of the Securities Act set forth dollar amounts used in connection with the crowdfunding exemption, and Section 4A(h)(1) states that such dollar amounts shall be adjusted by the SEC not less frequently than once every five years to reflect the change in the CPI-U published by the BLS.  The SEC has adopted amendments to Rules 100 and 201(t) of Regulation Crowdfunding and Securities Act Form C to reflect the required inflation adjustments.

Additionally, Sections 102 and 103 of the JOBS Act provided several exemptions from a number of disclosure, shareholder voting, and other regulatory requirements for any issuer that qualifies as an EGC. The exemptions reduce the financial disclosures an EGC is required to provide in public offering registration statements and relieve an EGC from conducting advisory votes on executive compensation, as well as from a number of accounting and disclosure requirements. 

The SEC said the regulatory relief provided under Sections 102 and 103 of the JOBS Act was self-executing and became effective once the JOBS Act was signed into law.  The technical amendments that the SEC is adopting conform several rules and forms to reflect these JOBS Act statutory changes.

Inflation-Adjusted Amounts in Rule 100 of Regulation Crowdfunding (Offering Maximum and Investment Limits)

Regulation Crowdfunding Rule

Original Amount

Rounded Inflation-Adjusted Amount

Maximum aggregate amount an issuer can sell under Regulation Crowdfunding in a 12-month period (Rule 100(a)(1))

$1,000,000

$1,070,000

Threshold for assessing investor’s annual income or net worth to determine investment limits (Rule 100(a)(2)(i) and (ii))

$100,000

$107,000

Lower threshold of Regulation Crowdfunding securities permitted to be sold to an investor if annual income or net worth is less than $107,000 (Rule 100(a)(2)(i))

$2,000

$2,200

Maximum amount that can be sold to an investor under Regulation Crowdfunding in a 12-month period (Rule 100(a)(2)(ii))

$100,000

$107,000

Table 2:  Inflation-Adjusted Amounts in Rule 201(t) of Regulation Crowdfunding (Financial Statement Requirements)

Regulation Crowdfunding Rule

Original Offering Threshold Amount

Rounded Inflation-Adjusted Amount

Rule 201(t)(1)

$100,000

$107,000

Rule 201(t)(2)

$500,000

$535,000

Rule 201(t)(3)

$1,000,000

$1,070,000

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