Form 1-E Supporting Statement

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Form 1-E, Regulation E
A.

JUSTIFICATION
1.

Necessity for the Information Collection

Regulation E provides a conditional exemption from the registration provisions of the
Securities Act for securities of small business investment companies (“SBICs”) and investment
companies that elect to be treated as business development companies (“BDCs”). Regulation E
was initially adopted in 1958 and made available to SBICs pursuant to Section 3(c) of the
Securities Act of 1933 (“Securities Act”) (15 U.S.C. 77a et seq.). Section 3(c) of the Securities
Act generally permits the Securities and Exchange Commission (“Commission”) to add to the
securities exempted from the Securities Act by Section 3 any class of securities issued by a
SBIC. In 1984, pursuant to Section 3(b) of the Securities Act, Regulation E was amended to
permit the availability of the exemption to BDCs. Section 3(b) of the Securities Act generally
permits the Commission to add any class of securities to the securities exempted from the
Securities Act by Section 3.
Regulation E allows the exemption of securities issued by an SBIC which is registered
under the Investment Company Act of 1940 (“Investment Company Act”) (15 U.S.C. 80a-1 et
seq.), or a closed-end investment company that has elected to be regulated as a BDC under the
Investment Company Act from registration under the Securities Act, so long as the aggregate
offering price of all securities of an issuer that may be sold within a 12-month period does not
exceed $5,000,000, provided that certain other conditions are met. Under rule 604 of Regulation
E, companies wishing to obtain the exemption must notify the Commission of their interest in
claiming the exemption by filing a notification on Form 1-E (17 CFR 239.200) with the

Commission. Rule 605 of Regulation E requires an issuer seeking a securities registration
exemption under Regulation E to provide an offering circular to persons solicited by the issuer
and to file the offering circular with the Commission if the offering is in excess of $100,000.
2.

Purpose of the Information Collection

Form 1-E is filed with the Commission by SBICs and BDCs to claim an exemption from
registration. The notification must include the names and addresses of the issuer, its affiliates,
directors, officers, and counsel; a description of events which would make the exemption
unavailable; the jurisdictions in which the issuer will offer the securities; information about
unregistered securities issued or sold by the issuer within one year before filing the notification
on Form 1-E; information as to whether the issuer is presently offering or contemplating offering
any other securities; and exhibits, including copies of the offering circular and any underwriting
contracts. The notification on Form 1-E requires less information than would be required in a
registration statement under the Securities Act and, thus, results in a reduction of costs and
savings of time for a qualified issuer engaged in a small offering. In addition to notifying the
Commission of an issuer’s intent to make a limited offering, Form 1-E assists the staff to
determine whether an exemption is available for the issuer.
A company claiming an exemption under Regulation E must also file an offering circular
with the Commission as an exhibit to Form 1-E and provide the offering circular to investors.
The offering circular must contain information specified in Schedule A or B of Regulation E (17
CFR 230.610a). In general, Schedules A and B of Regulation E require disclosure about the
business and investment policies of the issuer, its management, and its financial condition.
Because the offering circular requires less information than would normally be furnished to
investors in a prospectus, the burden on the issuer is reduced, while at the same time, investors
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receive pertinent information. The Commission uses the information provided in the offering
circular to determine whether the offering qualifies for exemption.
3.

Role of Improved Information Technology

Beginning on January 1, 2009, Form 1-E and the offering circular have been filed
electronically on the Commission’s electronic filing system, called EDGAR (for Electronic Data
Gathering, Analysis and Retrieval), which is designed to automate the filing, processing, and
dissemination of all disclosure filings. This automation has increased the speed, accuracy, and
availability of information, generating benefits to investors and financial markets.
4.

Duplication

Not applicable.
5.

Effect on Small Entities

The exemption under Regulation E is intended to relieve small entities of the reporting
burden of registering their offering under the Securities Act.
6.

Consequences of Less Frequent Collection

Without the information provided in Form 1-E, the Commission would have no notice of
the offering and could not determine whether an offering qualified for the exemption. In
addition, without the collection of information in the offering circulars, the Commission would
not be able to review the content of the offering and would not be able to determine whether the
offerings qualified for the exemption.
7.

Inconsistencies With Guidelines in 5 CFR 1320.5(d)(2)

Not applicable.

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8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the investment company industry and through public
conferences, meetings, and informal exchanges. These various forums provide the Commission
and staff with a means of ascertaining and acting upon paperwork burdens confronting the
industry. The Commission also requested public comment on the collection of information
requirements with respect to Form 1-E, Regulation E before it submitted this request for
extension and approval to the Office of Management and Budget. The Commission received no
comments in response to its request.
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

Not applicable.
11.

Sensitive Questions

Form 1-E collects information on affiliates of the issuer, persons who own ten percent or
more of the outstanding securities of any class of the issuer, the names and addresses of each
officer and director of the issuer, and the counsel for the issuer and underwriters. Form 1-E does
not collect Social Security Numbers. A System of Records Notice (SEC-3) can be found at
http://www.sec.gov/about/privacy/secprivacyoffice.htm.
12.

Estimate of Hour Burden

The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act (“PRA”) and are not derived from a quantitative,

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comprehensive, or even representative survey or study of the burdens associated with
Commission rules and forms.
The Commission estimates that, each year, one issuer files one notification on Form 1-E,
together with offering circulars, with the Commission. 1 Based on the Commission’s experience
with disclosure documents, we estimate that the burden from compliance with Form 1-E and the
offering circular requires approximately 100 hours per filing. The annual burden hours for
compliance with Form 1-E and the offering circular would be 100 hours (1 response x 100 hours
per response).
13.

Estimate of Total Annual Cost Burden

The Commission estimates that the cost of outside services used in preparing and filing
Form 1-E, including the offering circular, would be approximately $50,000 per filing (this cost
burden includes services provided by outside counsel, independent certified public accountants,
and printers). Thus, the annual cost burden estimate is $50,000 (1 response x $50,000 per
response).
14.

Estimate of Cost to the Federal Government

The annual cost of reviewing and processing registration statements, post-effective
amendments, proxy statements, shareholder reports, and other filings of investment companies,
including notifications on Form 1-E, amounted to approximately $18.6 million in fiscal year
2013, based on the Commission’s computation of the value of staff time devoted to this activity
and related overhead.

1

According to Commission records, one issuer filed two notifications on Form 1-E,
together with offering circulars, during 2013 and 2014.
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15.

Explanation of Changes in Burden

In the last PRA submission, the Commission estimated two responses to the collection of
information annually. Based on this estimate, the Commission determined a total annual
reporting burden of 200 hours.
Currently, the Commission estimates that, each year, one issuer files one notification,
together with offering circulars, on Form 1-E with the Commission. As discussed above, the
Commission estimates that the new annual reporting burden estimate would be 100 hours per
year, a decrease of 100 hours. The decrease of 100 internal hour burdens is based on a changed
estimate of the number of filings issuers make on Form 1-E (from two filings to one filing). The
Commission previously estimated that the current annual cost burden to be $100,000, which is
adjusted to a new estimate of $50,000. The change of $50,000 in the annual cost burden is based
on a decreased estimate of the number of filings issuers make on Form 1-E (from two filings to
one filing).
16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit Expiration Date

We request authorization to omit the expiration date on the electronic version of the form.
Including the expiration date on the electronic version of the form will result in increased costs,
because the need to make changes to the form may not follow the application’s scheduled
version release dates. The OMB control number will be displayed.
18.

Exceptions to Certification Statement

Not applicable.

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B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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