New Stock Exemptions For Small Businesses

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Protecting investors from themselves has been a prime Securities and Exchange Commission concern since its inception in 1934. But in the process, complicated SEC regulations have made raising capital difficult -- particularly for small businesses lacking the manpower that securities filings often demand.

Now the SEC, in conjunction with the North American Securities Administrators Association (NASAA), is proposing far less stringent requirements for certain limited or private stock offerings. Designated "Regulation D," one of its chief provisions calls for an attempt to bring state securities laws into conformity with less restrictive federal laws. The result would be a significant cost savings for small business. The new rules would also greatly expand a company's ability to sell unregistered securities, and would broaden definitions of "accredited" and "sophisticated" investors.

Some of Regulation D's proposed provisions as listed in the August 18 Federal Register:

* raise to $500,000 from the current $100,000 the amount of unregistered securities a company can sell, with respect to current rule 240-

* eliminate the ceiling of 100 individual buyers of unregistered securities, also with respect to rule 240

* raise to $5 million from $2 million the amount of securities eligible to be sold to so-called accredited investors, and extend the time limit from six months to one year with respect to current rule 242

* redefine an "accredited investor" to widen private individual participation in stock flotations not requiring disclosure documentation, with respect to rules 242 and 146

Most small business people already agree that by increasing capital limits and reducing strictures, Regulation D is a needed boon to small business financing -- if it becomes law. Says one enthusiastic spokesman, "for many years the SEC has used the failure of small businesses to comment as an argument to indicate they didn't care. This time I hope small business people weigh in with comments urging passage. Otherwise, there's no guarantee the commission will know they want it."

The SEC is inviting written comments through October 5. Correspondence should be addressed to: George A. Fitzsimmons, Secretary, Securities and Exchange Commission, 500 N. Capitol St., Washington DC 20549, and should refer to "File S7-891."