SEC Amends Exempt Offering Framework

On November 2, 2020, the U.S. Securities and Exchange Commission (the ”SEC”) voted to amend the exempt offering framework (the “Amendments”) under the U.S. Securities Act of 1933, as amended (the “Securities Act”). The SEC’s stated goal was to harmonize, simplify and improve the various exemptions from the registration requirements of the Securities Act. The Amendments will become effective 60 days after publication in the Federal Register, except for the extension of the temporary Regulation Crowdfunding provisions, discussed below, which will become effective upon publication in the Federal Register.

The Amendments make significant changes to (i) the SEC’s integration framework; (ii) “bad actor” disqualification under Regulations A, D and Crowdfunding; (iii) the treatment of “demo day” and “test the waters” communications and (iv) offering and investment limits for Regulations A, D and Crowdfunding, as well as other changes to specific exemptions under the Securities Act.

New Integration Framework

In certain cases, the SEC determines that simultaneous or successive private placements of securities by a single issuer constitute “integrated” securities offerings. Integrated offerings must together, in full, comply with the conditions of a single exemption from the registration requirements of the Securities Act. Failing to do so raises the possibility of rescission and a five-year injunction on future capital raising.

Whereas the integration framework previously consisted of a variety of rules and guidance, the Amendments, according to the SEC, establish “a general principle that looks to the particular facts and circumstances of two or more offerings, and focuses the analysis on whether the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for a particular offering.” Additionally, the Amendments provide four non-exclusive safe harbors from integration, set forth in new Rule 152:

Safe Harbor 1

Rule 152(b)(1)

Any offering made more than 30 calendar days before the commencement of any other offering, or more than 30 calendar days after the termination or completion of any other offering, will not be integrated with such other offering(s); provided that in the case where an exempt offering for which general solicitation is prohibited follows by 30 calendar days or more an offering that allows general solicitation, the issuer has a reasonable belief, based on the facts and circumstances, with respect to each purchaser in the exempt offering prohibiting general solicitation, that the issuer (or any person acting on the issuer’s behalf) either did not solicit such purchaser through the use of general solicitation or established a substantive relationship with such purchaser prior to the commencement of the exempt offering prohibiting general solicitation.

Safe Harbor 2

Rule 152(b)(2)

Offers and sales made in compliance with Rule 701, pursuant to an employee benefit plan, or in compliance with Regulation S will not be integrated with other offerings.

Safe Harbor 3

Rule 152(b)(3)

An offering for which a Securities Act registration statement has been filed will not be integrated if it is made subsequent to:

  • a terminated or completed offering for which general solicitation is not permitted,
  • a terminated or completed offering for which general solicitation is permitted that was made only to qualified institutional buyers and institutional accredited investors, or
  • an offering for which general solicitation is permitted that terminated or was completed more than 30 calendar days prior to the commencement of the registered offering.

Safe Harbor 4

Rule 152(b)(4)

Offers and sales made in reliance on an exemption for which general solicitation is permitted will not be integrated if made subsequent to any terminated or completed offering.

The Amendments replace the integration provisions of Regulations A, D and Crowdfunding and Rules 147 and 147A with references to new Rule 152, harmonizing the integration framework.

Bad Actor Disqualification

The SEC’s exempt offering framework disqualifies certain covered persons, including felons and other “bad actors,” from relying on the Regulation D, Regulation A and Regulation Crowdfunding exemptions to offer and sell securities. Regulation D differs from these other exemptions, however, in one key respect. To determine whether a covered person is disqualified from relying on Regulation D, the SEC “looks back” to the time of sale of the relevant securities. Under Regulation A and Regulation Crowdfunding, however, the SEC looks back to when the issuer filed an offering statement in relation to the relevant securities.

The Amendments align the lookback requirements under Regulation A and Regulation Crowdfunding with Regulation D by requiring that any bad actor analysis examine both the time of filing of the offering document and the time of the sale of the relevant securities.

“Demo Day” and “Test-the-Waters” Communications

Universities, angel investors, accelerators and incubators often organize “demo days,” inviting issuers to present their businesses to potential investors with the aim of securing investment. Communications made by participating issuers could constitute an offer of securities. However, it remained unclear whether such communications constituted “general solicitations” or “general advertising,” making unavailable certain private placement exemptions. 

The Amendments provide, under new Rule 148, that certain demo day communications will not be deemed general solicitations or general advertising so long as they are made in connection with a seminar or meeting sponsored by a college, university or other institution of higher education, a state or local government or instrumentality of a state or local government, a non-profit organization or an angel investor group, incubator or accelerator. Additionally, sponsors may not:

  • make investment recommendations or provide investment advice to attendees of the event; 
  • engage in any investment negotiations between the issuer and investors attending the event; 
  • charge attendees of the event any fees, other than reasonable administrative fees; 
  • receive any compensation for making introductions between attendees and issuers, or for investment negotiations between the parties; or 
  • receive any compensation with respect to the event that would require it to register as a broker or dealer under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), or as an investment adviser under the Investment Advisers Act of 1940, as amended.

Further restrictions apply to demo day events held online.

Additionally, the Amendments permit issuers contemplating exempt securities offerings to communicate with potential investors prior to determining which exemption such offerings will rely on. The purpose of these “test the waters” communications is to gauge investor interest prior to committing the resources required for an offering. Relatedly, pursuant to the Amendments, issuers relying on the Regulation Crowdfunding exemption may test the waters prior to filing an offering document with the SEC in a manner similar to current Regulation A.

Offering and Investment Limits

To issuers contemplating exempt securities offerings, perhaps as significant as the Amendments’ structural changes to the exempt offering framework is the SEC’s decision to increase offering and investment limits for certain exemptions.

Regulation A

For exempt securities offerings made pursuant to Regulation A, the Amendments raise the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million and raise the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million.

Regulation Crowdfunding 

For exempt securities offerings made pursuant to Regulation Crowdfunding, the Amendments raise the offering limit from $1.07 million to $5 million and amend the investment limits for investors by:

  • removing investment limits for accredited investors; 
  • using the greater of their annual income or net worth when calculating the investment limits for non-accredited investors; and
  • extending for 18 months the existing temporary relief providing an exemption from certain Regulation Crowdfunding financial statement review requirements for issuers offering $250,000 or less of securities in reliance on the exemption within a 12-month period.

Regulation D

For exempt securities offerings made pursuant to Rule 504 of Regulation D, the Amendments raise the maximum offering amount from $5 million to $10 million.

Other Changes to Specific Exemptions.

In addition revising the exempt offering framework as discussed above, the Amendments also:

  • permit the use of certain special purpose vehicles that function as a conduit for investors to facilitate investing in Regulation Crowdfunding issuers;
  • impose eligibility restrictions on the use of Regulation A by issuers that are delinquent in their Exchange Act reporting obligations;
  • change the financial information that must be provided to non-accredited investors in Rule 506(b) private placements to align with the financial information that issuers must provide to investors in Regulation A offerings;
  • add a new item to the non-exclusive list of verification methods in Rule 506(c); and
  • simplify certain requirements for Regulation A offerings and establish greater consistency between Regulation A and registered offerings.


The Amendments comprise part of a broader effort by the SEC to promote capital formation while preserving or enhancing the Securities Act’s investor protections. Issuers and investors should welcome these changes, which go far to clarify the SEC’s integration framework, harmonize the Securities Act’s various exemptions and make more attractive U.S. private placements through increased offering and investment limits. 

Issuers evaluating how the Amendments impact contemplated private placements are encouraged to reach out to Daniel D. Nauth at 416-477-6031 or at