On March 25, 2015, the Securities and Exchange Commission adopted final rules amending [https://www.securitieslawyer101.com/2015/regulation-a-going-public-attorneys/ Regulation A]. The new rules are often referred to as Regulation A+. These rules are designed to facilitate smaller companies' access to capital. Regulation A+'s new rules provide investors with more investment choices and issuers with more capital raising options during their going public transactions. The rules adopting Regulation A+ are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act.
Regulation A+ expands existing Regulation A. Existing Regulation A provides an existing exemption from registration for smaller issuers of securities. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction. The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital.
The updated exemption will enable smaller companies to offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure and reporting requirements.
"These new rules provide an effective, workable path to raising capital that also provides strong investor protections," said SEC Chair Mary Jo White. "It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies."
As adopted Regulation A+ provides for two tiers of offerings: Tier 1, for offerings of securities of up to $20 million in a 12-month period, with no more than $6 million in offers by selling security-holders that are affiliates of the issuer; and Tier 2, for offerings of securities of up to $50 million in a 12-month period, with no more than $15 million in offers by selling security-holders that are affiliates of the issuer. Both Tiers are subject to certain basic requirements while Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.
Regulation A+ also provides for the preemption of state securities law registration statement requirements and qualification requirements for securities offered or sold to "qualified purchasers" in Tier 2 offerings. [https://www.securitieslawyer101.com/2015/regulation-a-form-1-a/ Tier 1] offerings will be subject to federal and state registration and qualification requirements, and issuers may take advantage of the coordinated review program developed by the North American Securities Administrators Association (NASAA).
Like Rule 506(c) of Regulation D, an issuer must comply with the technical requirements of Regulation A+ in order to avail itself to the exemption, including bans on certain "bad actors" As such, issuers should engage qualified securities counsel prior to undertaking a Regulation A + offering to ensure all requirements are complied with.
The SEC's Regulation A+ fact sheet is summarized below.
The final rules, often referred to as Regulation A+, would implement Title IV of the JOBS Act and provide for two tiers of offerings:
[https://www.securitieslawyer101.com/2015/regulation-a-form-1-a/ Tier 1], which would consist of securities offerings of up to $20 million in a 12-month period, with no more than $6 million in offers by selling security-holders that are affiliates of the issuer.
Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period, with no more than $15 million in offers by selling security-holders that are affiliates of the issuer.
In addition to the limits on secondary sales by affiliates, the rules also limit sales by all selling security-holders to no more than 30 percent of a particular offering in the issuer's initial Regulation A [https://www.securitieslawyer101.com/2015/a-regulation-a-offering/ offering] and subsequent [https://www.securitieslawyer101.com/2015/regulation-a-going-public-attorneys/ Regulation A] offerings for the first 12 months following the initial offering.
