I 

113TH CONGRESS 

2D SESSION H. R. 4565 

To amend the securities laws to improve the small company capital formation 

provisions, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 6, 2014 

Mr. MCHENRY (for himself and Mr. GARRETT) introduced the following bill; 

which was referred to the Committee on Financial Services 

A BILL 

To amend the securities laws to improve the small company 

capital formation provisions, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Startup Capital Mod5 ernization Act of 2014’’. 

6 SEC. 2. INCREASE IN SMALL ISSUES EXEMPTIVE AUTHOR7 ITY. 

8 Section 3(b)(1) of the Securities Act of 1933 (15 

9 U.S.C. 77c(b)(1)) is amended by striking ‘‘$5,000,000’’ 

10 and inserting ‘‘$10,000,000’’. 


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1 SEC. 3. PREEMPTION OF STATE LAWS. 

2 (a) IN GENERAL.—The first subparagraph (D) of 

3 section 18(b)(4) of the Securities Act of 1933 (15 U.S.C. 

4 77r(b)(4)) (relating to a rule or regulation adopted pursu5 ant to section 3(b)(2)) is amended by inserting ‘‘section 

6 3(b)(1) or’’ before ‘‘section 3(b)(2)’’. 

7 (b) CLARIFICATION OF THE PRESERVATION OF

8 STATE ENFORCEMENT AUTHORITY.— 

9 (1) IN GENERAL.—The amendment made by 

10 subsection (a) relates solely to State registration, 

11 documentation, and offering requirements, as de12 scribed under section 18(a) of the Securities Act of 

13 1933 (15 U.S.C. 77r(a)), and shall have no impact 

14 or limitation on other State authority to take en15 forcement action with regard to an issuer, inter16 mediary, or any other person or entity using the ex17 emption from registration provided by section 

18 3(b)(1) of such Act. 

19 (2) CLARIFICATION OF STATE JURISDICTION

20 OVER UNLAWFUL CONDUCT OF INTERMEDIARIES, 

21 ISSUERS, AND CUSTODIANS.—Section 18(c)(1) of the 

22 Securities Act of 1933 is amended— 

23 (A) in subparagraph (A), by striking 

24 ‘‘and’’ at the end; 

25 (B) in subparagraph (B), by striking the 

26 period at the end and inserting ‘‘; and’’; and 


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1 (C) by adding at the end the following: 

2 ‘‘(C) with respect to a transaction de3 scribed under section 3(b), unlawful conduct by 

4 an issuer or custodian.’’. 

5 SEC. 4. EXCLUSION FROM SHAREHOLDER CAP. 

6 (a) IN GENERAL.—Section 12(g) of the Securities 

7 Exchange Act of 1934 (15 U.S.C. 78l(g)) is amended by 

8 adding at the end the following: 

9 ‘‘(7) EXCLUSION FOR SECURITIES ISSUED

10 UNDER REGULATION A PURSUANT TO SECTION 3(b) 

11 OF THE SECURITIES ACT OF 1933.—All securities 

12 issued under Regulation A (17 C.F.R. 230.251 et 

13 seq.) pursuant to section 3(b) of the Securities Act 

14 of 1933 shall be exempt from the provisions of this 

15 subsection if the issuer has filed audited financial 

16 statements with the Commission and the issuer is in 

17 compliance with all periodic disclosures required by 

18 the Commission pursuant to section 3(b)(4) of the 

19 Securities Act of 1933.’’. 

20 (b) RULEMAKING.—The Securities and Exchange 

21 Commission shall issue a rule to carry out section 12(g)(7) 

22 of the Securities Exchange Act of 1934 (15 U.S.C. 78c), 

23 as added by this section, not later than 180 days after 

24 the date of enactment of this section. 


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1 (c) RULE OF APPLICABILITY.—The exclusion pro2 vided under section 12(g)(7) of the Securities Exchange 

3 Act of 1934 (15 U.S.C. 78c), as added by this section, 

4 shall apply to securities issued before, on, or after the date 

5 of the enactment of this Act. 

6 SEC. 5. EXEMPTED TRANSACTIONS. 

7 (a) EXEMPTED TRANSACTIONS.—Section 4 of the Se8 curities Act of 1933 (15 U.S.C. 77d) is amended— 

9 (1) in subsection (a), by adding at the end the 

10 following new paragraph: 

11 ‘‘(7) transactions meeting the requirements of 

12 subsection (d).’’; 

13 (2) by redesignating the second subsection (b) 

14 (relating to securities offered and sold in compliance 

15 with Rule 506 of Regulation D) as subsection (c); 

16 and 

17 (3) by adding at the end the following: 

18 ‘‘(d)(1) The transactions referred to in subsection 

19 (a)(7) are transactions where— 

20 ‘‘(A) each purchaser is an accredited inves21 tor, as that term is defined in section 

22 230.501(a) of title 17, Code of Federal Regula23 tions (or any successor thereto); and 

24 ‘‘(B) if any securities sold in reliance on 

25 subsection (a)(7) are offered by means of any 


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1 general solicitation or general advertising, the 

2 seller takes reasonable steps to verify, in the 

3 manner set forth in section 230.506(c)(ii) of 

4 title 17, Code of Federal Regulations (or any 

5 successor regulation), that each purchaser is an 

6 accredited investor. 

7 ‘‘(2) Securities sold in reliance on subsection (a)(7) 

8 shall be deemed to have been acquired in a transaction 

9 not involving any public offering. 

10 ‘‘(3) The exemption provided by this subsection shall 

11 not be available for a transaction where the seller is— 

12 ‘‘(A) an issuer, its subsidiaries or parent; 

13 ‘‘(B) an underwriter acting on behalf of the 

14 issuer, its subsidiaries or parent, which receives com15 pensation from the issuer with respect to such sale; 

16 or 

17 ‘‘(C) a dealer. 

18 ‘‘(4) A transaction meeting the requirements of this 

19 subsection shall be deemed not to be a distribution for 

20 purposes of section 2(a)(11).’’. 

21 (b) EXEMPTION IN CONNECTION WITH CERTAIN EX22 EMPT OFFERINGS.—Section 18(b)(4) of the Securities Act 

23 of 1933 (15 U.S.C. 77r(b)(4)) is amended— 


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1 (1) by redesignating the second subparagraph 

2 (D) and subparagraph (E) as subparagraphs (E) 

3 and (F), respectively; 

4 (2) in subparagraph (E), as so redesignated, by 

5 striking ‘‘; or’’ and inserting a semicolon; 

6 (3) in subparagraph (F), as so redesignated, by 

7 striking the period and inserting ‘‘; or’’; and 

8 (4) by adding at the end the following new sub9 paragraph: 

10 ‘‘(G) section 4(a)(7).’’. 

Æ 


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