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Small companies gain from SEC's ruling

A ruling in late 2013 has opened the doors for small companies to raise tons more revenue and with less SEC review

Encouraging, funding, and protecting smaller businesses is vital to a functioning economy, but a delicate balance of financial freedom is required for small companies to get a foot in the door of their desired markets. The U.S. Securities and Exchange Commission's decision to implement Title IV -- otherwise known as "Small Company Capital Formation" provision -- was authorized on December 18, 2013, and has provided the opportunity for the small business to get a leg up on raising capital this year.  

The SEC's website describes the authorization as such:

"The SEC’s proposal would build upon Regulation A, which is an existing exemption from registration for small offerings of securities up to $5 million within a 12-month period.  The updated exemption would enable companies to offer and sell up to $50 million of securities within a 12-month period." 

Such a broader allowance comes 20 months after the implementation of the Jumpstart Our Business Startups Act of 2012 -- otherwise known as the JOBS Act -- that aimed at improving the business and economic environment for start-ups so they can more easily go public, and raise capital. One element of the myriad of obstacles facing small companies in the U.S. has been SEC registration -- something that Regulation A sought to make less burdensome for small businesses by limiting SEC review, among other provisos. 

But many see Regulation A's goal of enabling more capital raising as defunct -- something the December decision by the SEC will actually boost. Samuel Guzik at CrowdfundInsider writes that the SEC's decision gives hope to smaller businesses that now have more opportunity to raise capital to fund their ventures. But he describes the challenges that lie ahead for the SEC, not the least of which is backlash from state regulators:

"It may well be that the proposed regulatory action by the SEC may turn out to be too little too late. Ultimately it may take another act of Congress to settle the ensuing debate—something that might have been avoidable if the SEC joined the conversation at the Congressional table in 2012 with a strong hand and a strong voice—advocating the need for preemption of state securities regulation of Regulation A and Regulation A+ offerings."


Whether or not another act of Congress is indeed required, the SEC's milestone decision is certain to shake up the capital landscape for small companies today and of the future.


Further reading:

Bill to help small businesses could be dead on arrival

Intellectual property tips for new businesses in the New Year

A shaky future for small entities in patents 

SEC sees an increase in whistleblower activity

Contributing Author

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Juliana Kenny

Juliana Kenny is a contributor to, covering a range of topics including patent litigation, conflict mineral laws, executive compensation, and antitrust regulation. Juliana earned B.A.s...

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