Should Your Company Consider Regulation A+?

The Securities and Exchange Commission recently released long-awaited rules and forms related to the offer and sale of securities as mandated by Title IV of the JOBS Act, a move that could significantly ease capital formation for young companies.

Known as Regulation A+, the proposals would allow companies to raise up to $50 million annually without having to file a registration statement. The proposals modify the existing small offering exemption, Regulation A, which has essentially fallen into disuse due to its onerous requirements and limitations.

The new rules propose two levels for Regulation A+. Tier 1 allows for up to $5 million in offerings in any 12-month period, including up to $1.5 million for selling shareholders, while Tier 2 allows for $50 million and $15 million for selling shareholders. For companies with increasing financing needs that are not yet ready for the risk of an IPO, Regulation A+ is worth consideration.

Some highlights of the proposals:

• Tier 2 offerings would be exempt from state “blue sky” regulation and reviewed and qualified at the federal level. This federal preemption would also allow companies to “test the waters” both before and after filing an offering circular. Offering statements could also be submitted confidentially to the SEC, enabling companies to further investigate the viability of their potential issuance.
• Eligible forms of securities would include equity – common and preferred stock – and debt, as well as options and warrants. A public trading market for Tier 2 companies could be established.
• Though the SEC would require ongoing electronic reporting for Tier 2 offerings, the requirements would be more manageable than for other SEC reporting companies. A one-time report and no ongoing reporting would be required for Tier 1 companies.
• For Tier 2 offerings, investor purchases would be limited to 10 percent of the greater of net income or net worth.

If adopted, Regulation A+ could provide a viable option to easing capital formation for small companies seeking alternatives to venture capital or traditional IPOs. For more information on whether Regulation A+ is appropriate for your company, contact John J. McAneney, Esq., at Timoney Knox LLP.

Sources:

“Regulation A+ Offerings – A New Era at the SEC,” The Harvard Law School Forum on Corporate Governance and Financial Regulation, 1/15/2014, by Noam Noked

“SEC Proposes Long-Awaited Regulation A+ Rules,” The Corporate Counsel.net, 12/19/2013, by Dave Lynn