Even if you have no interest in crowdfunding, there are a number of interesting elements in the SEC’s crowdfunding proposal that may have broader applicability.
Phased disclosure: the crowdfunding proposal incorporates a number of information requirements. An issuer that intends to engage in a crowdfunded offering must prepare certain disclosures, which will be filed on Form C. The Form C would include basic information about the company and its business, information about its officers, directors and principal shareholders, its use of proceeds, a description of capital stock, related party transactions, recent securities offerings, a description of financial results (similar to an MD&A), etc. These disclosure requirements acknowledge that a one-size-fits-all disclosure model may not be appropriate. The SEC seems to have given thought to those disclosures that would be most relevant for an investor, and has tailored the disclosure requirements. Might this signal that the SEC is receptive to a phased disclosure approach that may be more broadly applied? The special forms (SB forms) that once were used for offerings by smaller public companies were abandoned years ago in favor of having all issuers use the same forms, but providing disclosure accommodations for smaller public companies. Now, EGCs also may benefit from certain disclosure accommodations. But, even with these accommodations, the disclosure requirements might still be further scaled back to focus on those items that are most important to investors and not risk having investors be overwhelmed by disclosures of only modest significance. It seems fair to assume that the SEC may use the Form C model to inform its approach to rulemaking for Regulation A+ deals.
Ongoing Reporting Requirements: the crowdfunding proposal contemplates that companies that complete an offering will be subject to certain ongoing reporting requirements. These would be made on a Form C-AR and would include information similar to that required in the initial Form C. This is the first time that the SEC has outlined an approach to public disclosures for a non-reporting company. Certainly these requirements might be made applicable to companies undertaking a Regulation A+ offering and choosing to remain private. It is also possible to anticipate that with many more companies choosing to stay private longer and having a market for their securities, some reporting requirements might be imposed.
Modified Regulatory Framework for Funding Portals: the proposal (especially when read in conjunction with FINRA’s proposal) is also significant in that it outlines a regulatory approach for an intermediary (funding portals) that will be regulated but will be something less than broker-dealers. This may be an approach that could be used for other purposes, such as in connection with regulating entities that engage only in M&A advisory services.