regulation a Offerings
Regulation A + tier 2 offerings
The Recently Adopted Provisions of Regulation A
Regulation A+ the Flexible Capital Raising Alternative
Prior to the JOBS Act, a number of market participants advocated amending Regulation A to raise the dollar threshold and legislation to amend and to modernize Regulation A was proposed and considered. In large measure, Title IV of the JOBS Act incorporated many of the provisions that had been addressed in those stand alone bills. Section 401 of the JOBS Act amended Section 3(b) of the Securities Act by renumbering it as Section 3(b)(1) and adopting new sections (b)(2) through (b)(5). Pursuant to the JOBS Act additions to Section 3(b), the Commission was authorized to promulgate rules and regulations creating an exemption that was similar to the existing Regulation A for offerings of up to $50 million.
The alternative or MIni-IPO: An Efficient and Exciting Way of Raising Capital in Today's Competitive Investment Market
What Companies are Not Eligible to Use Regulation A+
- A development stage company with no specific plan or business or a blank check company;
- Any investment company registered or required to be registered under the Investment Company Act of 1940 (this includes business development companies;
- Any entity issuing fractional undivided interests in oil or gas rights, or similar interests in other mineral rights.
- Issuers that have not filed with the SEC the ongoing reports required by Regulation A during the two years immediately preceding the filing of a new offering statement:
- Issuers that have had their registration revoked pursuant to an Exchange Act Section 12(j) order that was entered into within five years before the filing of the offering statement: and,
- Issuers subject to "bad actor" disqualification under Rule 262.
How Much Money can be Raised Using Regulation A
Significantly, an issue can choose Tier 2 for offerings up to $20 Million and bypass the Tier 1 limitations imposed by the state Blue Sky Laws. In the issuer’s initial Regulation A offering and any Regulation A-exempt offering in the 12 months following that offering price of the particular offering, the selling security holder component cannot exceed 30% of the aggregate offering. In addition, the final rules distinguish between sales by affiliates and sales by non-affiliates. After the first year following an issuer’s initial qualification of a Regulation A offering statement, the limit on secondary sales falls away for non-affiliates only. Notably, the final rule eliminates the current prohibition on resales by affiliates in reliance on the exemption unless the issuer had net income from continuing operations in at least one of the last ***************
Integration and Multiple Offerings
The final rule also addresses abandoned offerings, in much the same way that these are handled by Rule 155, with a 30-day cooling off period before the filing of a new registration statement.
The SEC reaffirmed guidance that was included in the proposing release which is consistent with the guidance regarding integration provided in Release 33-8828.
Who Can Invest
Advance Your Company's Future Using Reg A+
- Creative Solutions
- Business Insight
Bad Actor Disqualification
- the issuer, including its predecessors and affiliated issuers;
- directors, general partners, and managing members of the issuer;
- executive officers of the issuer, and other officers of the issuers that participate in the offering;
- 20 percent beneficial owners of the issuer, calculated on the basis of voting power;
- promoters connected with the issuer in any capacity; and,
- persons compensated for soliciting investors, including their directors, executive officers or other officers participating in the offerings, general partners and managing members
- Certain criminal convictions;
- Certain court injunctions and restraining orders;
- Certain final orders of certain state and federal regulators;
- Certain SEC disciplinary orders;
- Certain SEC cease-and-desist orders;
- Suspension or expulsion from membership in a self-regulatory organization (SRO), such as FINRA, or from association with an SRO member;
- SEC stop orders and orders suspending the Regulation A exemption; and,
- U.S. Postal Service false representation orders
Reasonable Care Exception
The steps an issuer should take to exercise reasonable care will vary according to particular facts and circumstances. A note to the rule states that an issuer will not be able to establish that it has exercised reasonable care unless it has made, in light of the circumstances, factual inquiry into whether any disqualification exists.
Disclosure of pre-existing eventsDisqualification will not arise as a result of disqualifying events relating to final orders of certain state and federal regulators or certain SEC cease-and-desist orders that occurred before June 19, 2015, the effective date of the rule amendments. Matters that existed before the effective date of the rule and would otherwise be disqualifying are, however, required to be disclosed in writing to investors in Part II of Form 1-A.
How To Start a Regulation A+ Offering
filing and Delivery Requirements of the Offering Statement
The Form 1-A Filing
Part IIPart II contains the narrative portion of the Offering Circular and requires disclosures of basic information about the issuer; material risks; use of proceeds; an overview of the issuer’s business; an MD&A discussion; disclosures about executive officers and directors and compensation; beneficial ownership information; related party transactions; and a description of the offered securities. This is similar to Part I of Form S-1, and an issuer can choose to comply with Part I of Form S-1 in connection with its Offering Circular. The disclosure requirements will be scaled.
Tier 1 and Tier 2 issuers must file balance sheets and other required financial statements as of the two most recently completed fiscal year ends (or for such shorter time as they have been in existence). U.S. issuers are required to prepare financial statements in accordance with U.S. GAAP. Canadian issuers may use U.S. GAAP or IFRS as adopted by the IASB. As with EGCs, an issuer may elect to delay implementation of new accounting standards to the extent such standard permit delayed implementation by non-public business entities. The election is a one-time election and must be disclosed. The financial statements for an issuer in a Tier 1 offering are not required to be disclosed; however, if a Tier 1 issuer already obtained an audit of its financial statement for other purposes and such audit was performed in accordance with U.S. GAAS or the PCAOB standards and the auditors meet the independence standards, then the audited financial statements must be filed.
The financial statements for an issuer in a Tier 2 offering are required to be audited. The audit firm must satisfy the independence standard but need not be PCAOB-registered. The financial statements may be audited in accordance with either U.S. GAAS or PCAOB standards. An issuer in a Tier 2 offering that seeks to have a class of securities listed on a national securities exchange concurrent with the Regulation A offering must include financial statements prepared in accordance with PCAOB standards by a PCAOB registered firm.
The final rule addresses technical matters, such as the age of the financial statements. Issuers in Tier II offerings are not required to provide financial statements in an interactive data format using XBRL. Part IIIThe exhibit requirements in Part III of Form 1-A are maintained, however, the final rule allows for incorporation by reference of exhibits that were previously filed by the issuer on EDGAR.
Ongoing Reporting Requirements
Form 1-K, the annual report, would require disclosures relating to the issuer’s business and operations for the preceding three fiscal years (or since inception if in existence for less than three years); related party transactions; beneficial ownership; executive officers and directors; executive compensation; MD&A; and two years of audited financial statements. The form is required to be filed within 120 calendar days of the issuer’s fiscal year-end.
Form 1-SA, the semi-annual report, would be similar to a Form 10-Q, although it would be subject to scaled disclosure requirements. The semi-annual report is required to be filed within 90 days after the end of the first six months of the issuer’s fiscal year end, commencing immediately following the most recent fiscal year for which full financial statements were included in the offering circular or, if the offering circular included six-month interim financial statements for the most recent full fiscal year, then for the first six months of the following fiscal year.
Form 1-U, for current reports, will be required to announce fundamental changes in the issuer’s business; entry into bankruptcy or receivership proceedings; material modifications to the rights of security holders; changes in accountants; non-reliance on audited financial statements; changes in control; changes in key executive officers; and sales of 10 percent or more of outstanding equity securities in exempt offerings. The form must be filed within four business days of the triggering event.
Form 1-Z, the exit report, would be required to be filed within 30 days after the termination or completion of a Regulation A-exempt offering.
Rule 15c2-11, Rule 144 and Rule 144A
Exchange Act Threshold
Tier 2 Offering with Concurrent Exchange Act Registration
Termination or Suspension of Tier 2 Disclosure Obligations
State Securities Law Requirements
securities Act Liability
Character of the Securities Sold in a Regulation A Offering
Kristin M. Cano your Regulation A+ Resource