Recent federal regulatory changes have significantly expanded access to private equity investments, creating new opportunities for California business owners both as investors and capital-raisers.
These developments mark a substantial shift from the restrictive approach that characterized the previous SEC administration.
The Regulatory Reversal
On June 5, 2024, the United States Court of Appeals for the Fifth Circuit vacated the SEC’s Private Fund Adviser Rules in their entirety. Nat’l Ass’n of Private Fund Managers v. SEC, No. 23-60471 (5th Cir. June 5, 2024). The court determined the SEC exceeded its statutory authority under the Investment Advisers Act of 1940, 15 U.S.C. § 80b-1 et seq. In September 2024, the SEC declined to appeal, effectively ending these restrictive regulations.
These vacated rules had imposed substantial compliance burdens on private fund advisers – including quarterly reporting requirements, restrictions on preferential treatment of certain investors, and prohibitions on various fee arrangements. Their elimination removes significant regulatory friction from private capital formation.
Expanded Accredited Investor Access
Congress has advanced legislation to expand who qualifies as an “accredited investor” under Regulation D of the Securities Act of 1933, 15 U.S.C. § 77d. 17 C.F.R. § 230.501. The House of Representatives passed two significant bills in 2025:
The Fair Investment Opportunities for Professional Experts Act (H.R. 3394), approved by a 397-12 bipartisan vote, expands the accredited investor definition to include individuals with professional licenses, credentials, or demonstrable expertise relevant to specific investments, regardless of net worth. This addresses the longstanding criticism that the wealth-based threshold (currently $1 million net worth or $200,000 annual income for individuals) bears little relation to investment sophistication.
The Equal Opportunity for All Investors Act directs the SEC to create an examination-based qualification pathway, allowing individuals to demonstrate financial sophistication through testing rather than wealth alone.
Retail Access to Private Credit
In May 2025, SEC Chair Paul Atkins announced plans to reconsider guidance limiting how much registered closed-end funds may invest in private funds. Current SEC staff positions have effectively capped such investments at 15%. Eliminating this restriction would provide retail investors indirect access to private equity and private credit through publicly-traded closed-end funds.
Implications for Business Owners as Investors
California business owners who previously failed to meet accredited investor thresholds may soon gain access to private equity, venture capital, and private credit investments. The professional credential pathway particularly benefits business owners with relevant industry expertise or professional licenses.
However, expanded access does not eliminate investment risk. Private offerings remain subject to the antifraud provisions of the Securities Act of 1933, 15 U.S.C. § 77q(a), and California Corporations Code section 25401. The absence of registration requirements means reduced disclosure obligations and limited liquidity.
Implications for Business Owners Raising Capital
The regulatory rollback creates a more favorable environment for California companies seeking private capital. The elimination of the Private Fund Adviser Rules reduces compliance costs for fund managers – potentially increasing their willingness to invest in smaller opportunities. The expansion of the accredited investor pool broadens the potential investor base.
California companies raising capital through private placements must still comply with federal Regulation D exemptions (17 C.F.R. §§ 230.501-230.508) and California exemptions. The most commonly used California exemption for private offerings is the Limited Offering Exemption under Corporations Code section 25102(f), which requires:
- Sales limited to 35 non-accredited investors (no limit on accredited investors);
- Each investor must have a pre-existing business or personal relationship with the issuer or demonstrate investment sophistication;
- No general solicitation or advertising; and
- Filing of a Limited Offering Exemption Notice (LOEN) with the California Department of Financial Protection and Innovation within 15 days of the first sale.
Cal. Corp. Code § 25102(f); 10 Cal. Code Regs. § 260.102.14.
Federal law preempts state qualification requirements for certain offerings under the National Securities Markets Improvement Act of 1996. 15 U.S.C. § 77r. However, California retains authority over notice filing requirements and antifraud enforcement. Offerings under federal Regulation D must still file a Form D notice with California within 15 days of the first California sale.
Practical Considerations
Business owners should approach these developments strategically. For investors, expanded access does not substitute for due diligence. Private investments typically involve illiquidity, higher risk, and limited regulatory oversight. Professional guidance remains essential for evaluating investment suitability.
For companies raising capital, the favorable regulatory environment creates opportunities but not shortcuts. Proper structuring of private offerings requires careful attention to both federal and California requirements. Violations of securities laws can result in rescission rights, civil penalties, and criminal liability. Cal. Corp. Code §§ 25501-25503; 15 U.S.C. § 77l.
Thomas F. Gallagher, Esq. is a founding partner of Gallagher Krich, APC, a San Diego law firm focused on business law, civil litigation, and contract disputes. With over 30 years of legal experience, Tom provides strategic counsel to business owners, entrepreneurs, and professionals navigating complex legal challenges across California.
His practice includes drafting and negotiating commercial contracts, resolving business disputes, and advising clients on corporate governance, regulatory compliance, and risk management. Read more »
