The SEC recently published its report on the 2024 Government-Business Forum on Small Business Capital Formation. The Forum addresses a range of issues affecting small businesses, including smaller public companies. The SEC’s Office of the Advocate for Small Business Capital Formation leads the Forum. The following fifteen policy recommendations, which range from recommendations related to privately held growth companies to smaller public companies, emerged from the Forum:
- Support entrepreneurs, including underrepresented founders, with modernized educational resources to allow businesses to better understand how to access capital, including capital from investors
- Expand the accredited investor definition to include additional measures of sophistication, including through an investor course or test
- Establish a regulatory framework for finders that includes an exemption from broker-dealer registration and helps facilitate small business capital formation
- Expand regional, federal, and state options available for non-dilutive funding to support the earliest stages of entrepreneurship
- Ensure capital raising rules provide equitable access to capital for underrepresented founders and investors
- Bolster and expand tax incentives that promote equity ownership and drive investment in the startup and small business ecosystem
- Focus SEC rulemaking efforts on reducing administrative and regulatory burdens on small business and their investors to improve capital allocation efficiency
- Support underrepresented emerging fund managers—specifically diverse and women managers—who are building funds that diversify capital allocation, engage sophisticated investors, and challenge pattern matching trends
- Support companies that offer equity ownership to employees and gig workers, and support policies that would better enable employee-owners to realize the value of their equity through transparency, appropriate tax policy, and access to secondary liquidity
- Expand venture capital funds’ qualifying investments to include fund-of-funds investments in other venture capital funds and investments acquired through secondary transactions
- Increase the $75 million public float threshold in the accelerated filer definition so that only larger filers are required to provide an auditor attestation of management’s assessment of internal control over financial reporting over Section 404(b) of the Sarbanes-Oxley Act
- Revise the “small entity” definition under the Regulatory Flexibility Act to better assess the regulatory costs of compliance for small and growing businesses
- Improve public trading for small companies by requiring more disclosures about short selling, institutional holdings, insider and affiliate holdings and transactions, paid stock promotion and information about the security from transfer agents
- Revise the public float and revenue thresholds for smaller reporting companies and accelerated filers to be rolling averages instead of thresholds determined on a particular date
- Revise Section 12(g) of the Securities Exchange Act of 1934 to remove the threshold for non-accredited investor holders and increase the asset threshold to $20 million
In commenting on the views of participants with respect to the challenges facing smaller public companies, the report notes that participants identified the principal challenge confronting smaller public companies as the cost of compliance. This was followed, in turn, by the burden of reporting requirements, and by trading volume concerns. Participants noted that the top priority for smaller public companies when it comes to their investors and shareholders was attracting more institutional investors. The next most significant priorities were engaging with investors and generating return on investment. Generally, the Forum recommendations have been considered by the SEC in connection with rulemaking.
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