SEC Holds Annual Forum on Small Business Capital Formation


Corporate & Finance Alert

December 2, 2008

It is frequently said that small business is the engine for job-creation that drives the American economy. However, in order to run efficiently and progressively, the engine requires that there be efficient access to capital. The entrepreneurs with the ideas and business plans that could develop into tomorrow’s middle market companies need to be able to source investment at the lowest possible cost, but consistent with the public policy of protecting investors against fraud.

Since 1982, the United States Securities and Exchange Commission has assembled an annual “Government-Business Forum on Small Business Capital Formation.”. The 2008 Forum [is] [was] on November 20, 2008 in Washington, D.C. and its general sessions can be accessed on the SEC’s website

The Forum is mandated by the Small Business Investment Incentive Act of 1980. Its purpose is to provide a platform for small business to communicate with government regulators regarding perceived unnecessary impediments to the capital raising process. The participants in the Forum include small business executives, venture capitalists, trade association representatives, business lawyers, accountants and government officials. Historically, the Forums have developed recommendations regarding legislative and regulatory changes in federal securities and taxation law which, in many cases, have ultimately be adopted by Congress and regulatory agencies.

The 2007 Forum featured information sharing and discussion on a package of proposed SEC regulatory modifications intended to benefit both non-reporting small businesses accessing the capital markets and a segment of SEC reporting companies, which were re-categorized under the term “smaller reporting companies.” Many of these initiatives were the subject of final rule releases in late 2007 and early 2008, including amendments to Rule 144 which now permit more rapid disposition of privately placed securities, amendments to the disclosure requirements for reporting companies permitting “scaled” disclosure for an expanded group of “smaller reporting companies,” amendments facilitating enhanced access to the simplified Registration Statement Form S-3 for primary offerings by smaller reporting companies, and amendments to the rules under Section 12(g) of the Securities Exchange Act of 1934, as amended, intended to prevent companies with large numbers of options outstanding from inadvertently becoming public companies. For a summary of these rule amendments click here.

There still remains unfinished business from the list of recommendations made at the 2007 Forum. These include proposed amendments to the SEC’s private placement safe harbor, Regulation D, the most significant of which are the shortening of the integration safe harbor from six month to 90 days and limited advertising in connection with private placements in certain circumstances. In addition, there are proposals for the SEC to adopt rules, in coordination with the States’ securities regulators, permitting a limited exemption for M&A and business brokers who act as intermediaries and advisors in the purchase and sale of businesses, and a limited exemption from required broker-dealer registration for “private placement brokers” who help raise money for smaller firms.

Should you have any questions regarding your own situation, please contact Lawrence A. Goldman of our Corporate Department.