The Securities and Exchange Commission approved new rules Thursday to make it easier for small businesses to raise capital through private offerings, issue stock options, and make regulatory filings.
Most notably, the holding period for restricted securities was shortened from a year to six months in an effort to make capital cheaper and more accessible, and to improve liquidity. The SEC also exempted requirements for small businesses in registering shares and issuing reports if they have fewer than 500 option holders, giving them more flexibility when issuing employee stock options.
Christopher Cox, the SEC chairman, said the revisions will “enable smaller companies to raise capital more effectively and ease some of the burdens of our reporting and disclosure requirements,” ensuring that investors are paying for protection rather than red tape.
Larger small businesses will also get a break, as the SEC decided to simplify their paperwork load. The commission raised its threshold for “smaller reporting companies” to those with less than $75 million in publicly traded securities — up from $25 million — or $50 million in annual revenues for those that do not have a public-equity float. The move will allow an additional 1,500 smaller companies to supply streamlined information.
The changes should “make it more efficient for companies of all sizes to access the private markets,” said John White, director of the SEC’s division of corporation finance.
The vote finalized three of six rule changes proposed last spring. White said additional rules to “further promote capital formation by smaller companies” are expected in the coming months.