I recently joined the board of directors of the Crowdfunding Professional Association. The board asked me to draft a letter to the Securities and Exchange Commission requesting emergency temporary relief from the onerous requirements under Regulation Crowdfunding to prepare reviewed financial statements. We submitted the letter on April 7.
To our surprise, the SEC released emergency temporary rules on May 4. The key provisions are:
- financial statements do not need to be prepared to launch a campaign (but investment commitments cannot be accepted until the financial statements are provided)
- the amount you can raise without having to prepare reviewed financials has been increased from $107,000 to $250,000
These temporary rules apply for Regulation Crowdfunding campaigns started between now and August 31, 2020, and the issuer must have been organized and operating for at least six months.
If you’d like to take advantage of these temporary rules, please contact us at firstname.lastname@example.org.
Here is the specific request we put in our letter:
The Crowdfunding Professional Association writes to voice its support for the SEC’s goal to simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.
Given our current health and economic crisis, we would like to respectfully request consideration of the following urgent temporary amendments to some of the registration exemptions to expand short-term access to capital:
. . .
Section 227.201(t): Suspend the requirement that “the financial statements must be prepared in accordance with U.S. generally accepted accounting principles and include balance sheets, statements of comprehensive income, statements of cash flows, statements of changes in stockholders’ equity and notes to the financial statements” to the extent that the company has a minimal operating history and/or its previous operating history is currently immaterial to an understanding of future operations due to current economic crisis. Similarly and for the same reasons, suspend the requirement that issuers provide reviewed or audited financial statements for raised over $107,000.
We very much appreciate the opportunity to submit these proposals and believe strongly that they could facilitate much needed capital formation for our country’s small businesses that are struggling during this economic crisis.