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SEC Eases Burden of Filing Annual Reports for Title III Issuers

Last week, in our article about final SEC rules for issuers under Title III of the JOBS Act, we noted that after a successful funding round is complete, issuers have to file annual reports with the SEC, and share them with investors as well.

Here I’ll drill down into that particular rule. The SEC specifies that annual reports must be posted on the issuers’ websites within 120 days of the issuer’s fiscal year-end. The reports do not have to be audited or reviewed by outside accountants. Annual filing requirements under Title III continue until one of the following occurs:

  • The issuer goes public and becomes a fully reporting registrant with the SEC.
  • The issuer has filed at least one annual report and has no more than 300 shareholders of record.
  • The issuer has filed at least three annual reports and has no more than $10 million in assets.
  • The issuer or another party purchases or repurchases all the securities sold in the Title III deal.
  • The issuer stops doing business.

The final rules are much easier and less costly to comply with than the SEC’s proposed rules (issued in 2013), which is a relief to Title III securities issuers. Entrepreneurs were worried that it would be too costly to raise capital via equity crowdfunding, partly due to the expense of compiling and posting annual reports but also due to the required audit of financial statements for raises between $500,000 and $1 million. The SEC lifted the audit requirement for first-time issuers in Title III crowdfunding.

 

— David M. Freedman has worked as a financial and legal journalist since 1978. He is a coauthor of Equity Crowdfunding for Investors (Wiley & Sons, 2015). Details: www.ec4i.com.

About David M. Freedman

David M. Freedman has worked as a financial and legal journalist since 1978. He has served on the editorial staffs of business, trade and professional journals, most recently as senior editor of The Value Examiner (National Association of Certified Valuators and Analysts). He is coauthor of Equity Crowdfunding for Investors, published in June 2015 by…

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