SEC Adopts JOBS Act Inflation Adjustments and Technical Amendments
On March 31, 2017, the Securities and Exchange Commission (the SEC) approved new thresholds to effectuate inflation adjustments that are required under Title I and Title III of the Jumpstart Our Business Startups Act (the JOBS Act). The changes affect both equity crowdfunding campaigns and “emerging growth companies” under the securities laws. In addition to the modest inflation adjustments described more fully below, the SEC adopted technical amendments to conform several rules and forms. The technical amendments merely make conforming changes to the SEC’s rules as a result of the JOBS Act. The new changes become effective when they are published in the Federal Register.
Table I represents the changes to the offering maximum and investment limits pursuant to Regulation Crowdfunding:
| Table I | ||
| Regulation Crowdfunding Rule | Original Amount | Rounded Inflation-Adjusted Amount |
| Maximum aggregate amount an issuer can sell under Regulation Crowdfunding in a 12-month period (Rule 100(a)(1)) | $1,000,000 | $1,070,000 |
| Threshold for assessing investor’s annual income or net worth to determine investment limits (Rule 100(a)(2)(i) and (ii)) | $100,000 | $107,000 |
| Lower threshold of Regulation Crowdfunding securities permitted to be sold to an investor if annual income or net worth is less than $107,000 (Rule 100(a)(2)(i)) | $2,000 | $2,200 |
| Maximum amount that can be sold to an investor under Regulation Crowdfunding in a 12-month period (Rule 100(a)(2)(ii)) | $100,000 | $107,000 |
Table II represents the changes to the thresholds with respect to financial statement disclosure requirements for an issuer in a crowdfunding campaign. For instance, Rule 201(t)(1) of Regulation Crowdfunding previously required issuers raising $100,000 or less to only provide income tax returns certified by the principal executive officer. The new adjustment increases this threshold to $107,000.
| Table II | ||
| Regulation Crowdfunding Rule | Original Offering Threshold | Rounded Inflation-Adjusted Amount |
| Rule 201(t)(1) | $100,000 | $107,000 |
| Rule 201(t)(1) | $500,000 | $535,000 |
| Rule 201(t)(1) | $1,000,000 | $1,070,000 |
Finally, the JOBS Act defined “emerging growth company” (or ECG) to mean any issuer with total annual gross revenues of less than $1 billion during its most recent fiscal year. This threshold is important because an issuer that qualifies as an ECG is exempt from certain disclosure, shareholder voting and other regulatory requirements that can be very costly for a relatively small public company. Every five years, the SEC must index such amount for inflation to reflect the change in the Consumer Price Index for All Urban Consumers. As a result of the recent changes, the inflation-adjusted threshold to meet the definition of an ECG is $1,070,000,000.
We will continue to monitor developments relating to the SEC’s regulations concerning capital formation as we expect additional changes following last year’s election.
If you have questions or would like more information, please contact Alexandria Kane (kanea@whiteandwilliams.com; 212.631.4409), Michael Psathas (psathasm@whiteandwilliams.com; 212.868.4833) or another member of our Corporate and Securities Group.