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SEC Adopts Amendments to Harmonize and Improve "Patchwork" Private Offering Framework

Client Updates

On November 2, 2020, the U.S. Securities and Exchange Commission adopted amendments to the rules under the Securities Act of 1933 designed to simplify and harmonize the exempt offering framework for the benefit of investors, emerging companies and more seasoned issuers. These amendments to the private offering exemptions, which allow businesses to raise capital in an offering exempt from the registration requirements of the Securities Act, are intended to improve access to capital for issuers and expand investment opportunities while preserving or improving important investor protections.

The amendments were adopted substantially as the SEC had proposed in March 2020, with certain modifications in response to feedback received. The SEC’s proposing release can be found here, and our client alert summarizing the proposed amendments can be found here.

Highlights of the Amendments

Among other things, the amendments generally:

  • establish a clearer “integration” framework allowing for the ability of issuers to move from one exemption to another;

  • increase the offering limits for Regulation A, Regulation Crowdfunding and Rule 504 offerings, and revise certain individual investment limits;

  • set clear and consistent rules governing certain offering communications, including permitting certain “test-the-waters” and “demo day” activities; and

  • harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions.

Integration Framework

The amendments revise the “integration” determination framework–i.e., whether multiple securities transactions should be considered part of the same offering for purposes of determining whether an exemption is available. The new integration framework established by the amendments provides a general principle of integration in new Rule 152(a) and four safe harbors in new Rule 152(b).


General Principle (Rule 152(a)). The general principle in Rule 152(a) looks to the particular facts and circumstances of the offerings. Where the safe harbors are unavailable, two or more offerings will not be integrated if the issuer can establish that each offering either complies with the Securities Act’s registration requirements or qualifies for an exemption from registration. Rule 152(a) also makes a distinction between offerings that do or do not allow general solicitation.

  • Application to an Exempt Offering that Prohibits General Solicitation (Rule 152(a)(1)). In an exempt offering that does not allow general solicitation, the issuer must have a reasonable belief, based on the facts and circumstances, with respect to each purchaser in such exempt offering, that the issuer (or any person acting on the issuer’s behalf) either: (a) did not solicit such purchaser through the use of general solicitation or (b) established a substantive relationship with such purchaser prior to the commencement of the offering.

  • Application to Concurrent Exempt Offerings that Allow General Solicitation (Rule 152(a)(2)). In concurrent exempt offerings that allow general solicitation, each offering must satisfy the requirements of the particular exemption relied on. Further, to the extent that general solicitation offering materials include information about the material terms of the other offering, both offerings must comply with any legend requirements and communications restrictions, given that general solicitation offering material for one offering may constitute an offering of the securities in such other offering.

Non-Exclusive Safe Harbors (Rule 152(b)). The amendments also establish four non-exclusive safe harbors from integration, contained in Rule 152(b):

  • any offering made more than 30 calendar days before the commencement of any other offering, or more than 30 calendar days after the termination or completion of any other offering, will not be integrated with such other offering(s) (provided that the issuer complies with applicable restrictions on general solicitation);

  • offers and sales made in compliance with Rule 701, pursuant to an employee benefit plan or in compliance with Regulation S will not be integrated with other offerings;

  • an offering for which a Securities Act registration statement has been filed will not be integrated if it is made subsequent to:

    • a terminated or completed offering for which general solicitation is not permitted;

    • a terminated or completed offering for which general solicitation is permitted that was made only to qualified institutional buyers and institutional accredited investors; or

    • an offering for which general solicitation is permitted that terminated or was completed more than 30 calendar days prior to the commencement of the registered offering; and

  • offers and sales made in reliance on an exemption for which general solicitation is permitted will not be integrated if made subsequent to any terminated or completed offering.

Determination of When an Offering has Commenced (Rule 152(c)). To provide issuers with clarity as to the availability of the new safe harbors under Rule 152(b), the SEC adopted Rule 152(c), which provides a non-exclusive list of factors to consider in determining when an offering will be deemed to be commenced for purposes of both the general principle of integration in Rule 152(a) and the safe harbors in Rule 152(b). The factors include, among others:


  • the date on which the issuer first makes a generic offer soliciting interest in a contemplated offering pursuant to “testing the waters” under new Rule 241 (as discussed below);

  • the date on which the issuer first makes an offer of securities in reliance on certain private placement exemptions, such as Section 4(a)(2) and Regulation D;

  • the earlier of the date on which:

    • the issuer first makes an offer soliciting interest in a contemplated offering in reliance on Regulation A, or

    • the public filing of a Form 1-A offering statement; and

  • for a continuous offering that will commence on the date of the registration statement’s effectiveness, the date on which the issuer first files a registration statement, or, for a delayed offering, the earliest date on which the issuer or its agents commence public efforts to offer and sell the securities (which could be evidenced by the first filing of a prospectus supplement describing the offering, or the issuance of a press release, confirming the commencement of the offering).

The SEC made clear that, due to their non-public nature, communications between an issuer, or its agents and underwriters, and qualified institutional buyers and institutional accredited investors will not be deemed the commencement of a registered public offering for purposes of Rule 152. On the other hand, in an exempt offering in which general solicitation is prohibited, the commencement of communications between an issuer, or its agents, including private placement agents, and prospective investors may be deemed the commencement of the non-public exempt offering, if such private communications involve an offer of securities.


Determination of Whether an Offering is Terminated or Completed (Rule 152(d)). The SEC also adopted new Rule 152(d), which provides a non-exclusive list of factors to consider in determining whether an offering is “terminated or completed.” The factors include, among others:

  • for certain private placements, such as under Section 4(a)(2) or Regulation D, on the later of the date:

    • the issuer entered into a binding commitment to sell all securities to be sold under the offering (subject only to conditions outside of the investor’s control), or

    • the issuer and its agents ceased efforts to make further offers to sell the securities under such offering;

  • for an offering in which a registration statement has been filed, on:

    • the withdrawal of the registration statement;

    • the filing of a prospectus supplement or amendment to the registration statement indicating that the offering has been terminated or completed;

    • the entry of an order by the SEC declaring that the registration statement has been abandoned;

    • the date, after the third anniversary of the initial effective date of the registration statement, on the issuer is prohibited from continuing to sell securities using the registration statement, or any earlier date on which the offering terminates by its terms; or

    • any other factors that indicate the issuer has abandoned or ceased its public selling efforts in furtherance of the offering (which could be evidenced by the filing of a Current Report on Form 8-K or the issuance of a widely disseminated public disclosure informing the market that the offering has been terminated or completed).

Offering and Investment Limits


The amendments revise the current offering and investment limits for Regulation A, Regulation Crowdfunding and Rule 504 offerings:

  • Regulation A

    • raise the maximum offering amount for Tier 2 of Regulation A from $50 million to $75 million; and

    • raise the maximum offering amount for Tier 2 of Regulation A secondary sales from $15 million to $22.5 million.

The SEC confirmed that Tier 2 offerings are preempted from state law registration and qualification requirements pursuant to the exemption for “covered securities”; however, it declined to extend that exemption to Tier 1 offerings as had been suggested by a commenter. Note that Regulation A provides for two tiers of offerings, each with its own requirements: (a) Tier 1, for offerings of up to $20 million in a 12-month period, and (b) Tier 2, for offerings of up to $75 million in a 12 month-period (as increased by these amendments).

  • Regulation Crowdfunding

    • raise the offering limit from $1.07 million to $5 million;

    • revise the investment limits by: (a) removing investment limits for accredited investors and (b) using the greater of their annual income or net worth when calculating the investment limits for non-accredited investors; and

    • extend for 18 months the existing temporary relief providing an exemption from certain Regulation Crowdfunding financial statement review requirements for issuers offering $250,000 or less of securities in reliance on the exemption within a 12-month period.

  • Rule 504 of Regulation D

    • raise the maximum offering amount from $5 million to $10 million.

“Test-the-Waters” Communications


The amendments revise the offering communication rules relating to “test-the-waters” communications to:

  • adopt Rule 241, which will permit an issuer to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities; and

  • adopt Rule 206, which will permit Regulation Crowdfunding issuers to “test-the-waters” prior to filing an offering document with the SEC in a manner similar to the process currently permitted under Regulation A.

“Demo Day” Communications


The amendments also revise the offering communication rules to provide that certain communications related to “demo days” and similar events will not be deemed general solicitation or general advertising as long as certain conditions are met (as further discussed below). “Demo days” include seminars or meetings during which issuers present their business to potential investors, with the aim of securing investment, and can be sponsored by parties such as a college, university, or other institution of higher education, a State or local government or instrumentality of a State or local government, a nonprofit organization, or an angel investor group (as defined in new Rule 148), incubator, or accelerator. Notably, the list of eligible sponsors does not include private funds, venture forums, venture capital associations, trade associations, or professional organizations.


The conditions that must be met include the following:

  • Multiple issuers. More than one issuer must participate in the seminar or meeting.

  • Sponsor Activities. The sponsor of the meeting or seminar may not:

    • make investment recommendations or provide investment advice to attendees of the event;

    • engage in any investment negotiations between the issuer and investors attending the event;

    • charge attendees of the event any fees, other than reasonable administrative fees;

    • receive any compensation for making introductions between event attendees and issuers, or for investment negotiations between the parties; or

    • receive any compensation with respect to the event that would require it to register as a broker or dealer under the Exchange Act of 1934.

  • Advertising. No advertising for the meeting or seminar may reference a specific offering of securities.

  • Online Participation. In response to concerns of broad offering-related communications to non-accredited investors, virtual “demo day” events must be limited to:

    • individuals who are members of, or otherwise associated with the sponsor organization (for example, members of an angel investor group or students, faculty, or alumni of a college or university);

    • individuals that the sponsor reasonably believes are accredited investors; or

    • individuals who have been invited to the event by the sponsor based on industry or investment-related experience reasonably selected by the sponsor in good faith and disclosed in the public communications about the event.

  • Scope of Information. Information conveyed at the event regarding the offering of securities by or on behalf of the issuer is limited to:

    • notification that the issuer is in the process of offering or planning to offer securities;

    • the type and amount of securities being offered;

    • the intended use of the proceeds of the offering; and

    • the unsubscribed amount in an offering.

Miscellaneous Improvements to Specific Exemptions


To lessen the burden on issuers in connection with verifying that an investor is an accredited investor, the amendments add a new item to the non-exclusive list in Rule 506(c) of Regulation D that will allow an issuer to establish accredited investor status if (a) the issuer has previously (such as in a prior offering) taken reasonable steps to verify that an investor was an accredited investor and (b) the investor provides a written representation that the investor continues to qualify as an accredited investor at the time of the proposed offering. The issuer’s ability to rely on a prior verification is subject to a five-year time limit.


The amendments also establish rules that permit the use of certain special purpose vehicles that function as a conduit for an investor to facilitate investing in Regulation Crowdfunding issuers and impose eligibility restrictions on the use of Regulation A by issuers that are delinquent in their reporting obligations under the Exchange Act.


The amendments also:

  • change the financial information that must be provided to non-accredited investors in Regulation D Rule 506(b) private placements to align with the less burdensome requirements for Regulation A offerings (for example, issuers would no longer be required to provide audited financial statements in a Regulation D offering of less than $20 million);

  • simplify certain requirements for Regulation A offerings and establish greater consistency between Regulation A and registered offerings, such as allowing issuers the option of filing redacted versions of material contracts and plans of acquisition, liquidation or succession consistent with Regulation S-K;

  • clarify that securities offered and sold under Regulation Crowdfunding will constitute “covered securities” so that state securities law registration and qualification requirements will not apply; and

  • harmonize the bad actor disqualification provisions in Regulation D, Regulation A, and Regulation Crowdfunding by adjusting the look-back requirements in Regulation A and Regulation Crowdfunding to also refer to the time of sale (as opposed to only referencing the time the issuer files an offering statement).



The amendments will become effective 60 days after publication in the Federal Register, except for the extension of the temporary Regulation Crowdfunding provisions, which will be effective upon publication in the Federal Register. To read the full 388-page adopting release, please click here.

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