In March, the U.S. Securities and Exchange Commission enacted
Regulation A+, to make it easier for businesses to raise capital.
Reg A+ is certain to be utilized by growing companies that
require significant capital, but it may not be the best option for
New Hampshire start-ups and other early stage companies.
Beginning on June 19, 2015, companies will be able to raise up to
$50 million a year using Reg A+. The SEC implemented Reg A+
to ease the burdens small companies face in raising capital.
As stated by Mary Jo White, Chairperson of the SEC, Reg A+ is
intended to provide "an effective, workable path to raising
capital.
Reg A+ expands existing Regulation A, a longstanding exemption
from the onerous registration requirements imposed on public
offerings. Regulation A, as a practical matter, afforded
relatively little relief and was rarely used, most notably because
it only allowed companies to raise up to $5 million and required
registration and qualification in each state where securities were
sold.
New Reg A+ has two parts: one that governs so-called Tier 1
offerings, offerings of up to $20 million in a 12-month period, and
one that governs so-called Tier 2 offerings, offerings of up to $50
million in a 12-month period. It permits companies to publicly
advertise their offerings and, with certain restrictions, to
"test the waters" by advertising and gauging investor
interest ahead of the preparation of formal offering documents.
Additionally, while Tier 1 offerings continue to be subject
to both federal and state registration and qualification
requirements, Tier 2 offerings are exempt from state registration
and qualification requirements.
Although Tier 2 offerings appear to provide significant new
opportunities for start-up and early stage companies including the
ability to raise capital from non-accredited investors (up to 10%
of the greater of their annual income or net worth), both Tier 1
and Tier 2 offerings still require preparation of a formal offering
circular containing significant, specified disclosures about the
company and the offering similar to a registration statement filed
by a public company. Companies conducting Tier 2 offerings
also will be required to prepare audited financial statements and
to file annual, semiannual, and current event reports with the
SEC.
Despite the SEC's good intentions, the need for a formal
offering circular and, with respect to Tier 2 offerings, ongoing
reporting make it unlikely that Reg A+ will be the most effective
option for startups and early-stage companies seeking to raise
capital in New Hampshire. Reg A+ offerings are likely to be
most useful to larger, later-stage companies or by early-stage
companies that have attracted significant financial backing and can
shoulder the burden of extensive disclosure documents, audited
financial statements, and ongoing reports. In fact, Reg A+ is
also referred to as "IPO-Lite," and it is likely to be
most effective for companies considering a future initial public
offering.
For most if not all start-ups and early-stage companies in New
Hampshire, existing exemptions from registration, including Rule
506 of Regulation D, are going to continue to provide more
efficient, cost-effective, and workable paths to raising capital.
For example, Rule 506(c) allows companies to raise unlimited
amounts of capital from accredited investors and permits public
advertising of the offering. Crowdfunding when the SEC fully
adopts rules to permit it, may be another path. Businesses
considering raising private capital should consult with a qualified
attorney who can help them determine the most appropriate structure
that complies with state and federal requirements.
Published in the Union Leader - June 2015
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
