29 Oct House Passes Codification of Private Stock Resale Exemption

Earlier this month, the US House of Representative unanimously passed H.R. 1839, known as the Reforming Access for Investments in Startup Enterprises Act of 2015 or the “RAISE Act of 2015.” What is this you say? Well it clarifies that if you own non-publicly tradeable shares of a company, you can sell those shares in a private transaction without worrying about anyone saying you conducted a public offering.

For years practitioners acknowledged a sort of made-up exemption, that the SEC accepted, known as a Section 4(1-1/2) exemption. Not enough space here to explain that! But this bill finally codifies this practice with some safeguards. First, the buyer has to be accredited. Second, the seller has to get a bunch of information from the company to give to or make available to the purchaser, including two years of key financial statements (that would kill the Facebook situation where they wouldn’t give financials before they went public). As a seller you also can’t be a “bad actor” or engage in advertising or general solicitation.

This is big for the “secondary market” folks who help people in pre-IPO companies sell blocks of stock, as it gives greater certainty. It also indirectly helps companies that are already public to be able to issue “restricted” stock in private offerings and make it somewhat easier for those investors to sell their shares before their 6-month waiting period expires to sell publicly. Let’s see if the Senate moves on this as well and it gets to Pres. Obama before the silly season really kicks in. Seems pretty non-controversial to this observer.