With much fanfare, the Securities and Exchange Commission
("SEC") in the U.S. announced on March 25, 2015 that it
has adopted rules to facilitate smaller companies' access to
capital, as mandated by the JOBS Act. Sums of up to $20 million can
be raised in a Tier 1 offering, while up to $50 million can be
raised in a Tier 2 offering under the new, updated and expanded
Regulation A ("Reg A"), known as Reg A+. As adopted, Reg
A+ can be used only by qualified companies that are organized in,
and that have their principal place of business in, the United
States or Canada.
Benefits of using Reg A+ include that investors don't have
to be accredited, though the amount that can be invested in a Tier
2 offering by those that are not accredited is subject to a
"cap", and the securities issued to investors in the
offering are "free trading". But what real benefit is
having "free trading" shares? Issuers that are already
registered with the SEC are not eligible to use Reg A. Listed
Canadian issuers that are not registered with the SEC are eligible
to use Reg A, but the shares issued to U.S. investors in a Reg A
offering will have to contain a Canadian legend. Moreover, because
the securities issued in both Tier 1 and Tier 2 offerings are not
'covered securities', they are not exempt from state blue
sky requirements for trades among shareholders in the secondary
Under Reg A+, issuers must file an offering circular with the
SEC, which must then be reviewed and "qualified" by the
SEC. An offering circular is a scaled-down version of a prospectus,
which is a disclosure document that provides potential investors
with information that will form the basis for their investment
decision. The "qualification process" is similar to the
review process for a registered offering with the SEC. The offering
circular must contain financial statements for the most recent two
years, those for Tier 1 offerings do not need to be audited but
those for Tier 2 must be audited in accordance with AICPA (U.S.
GAAS) or PCAOB standards.
Prior to these amendments, Reg A was rarely used primarily
because the amount that could be raised was limited to $5 million
and issuers were required to submit the offerings to the securities
commissions in the various states where the offer was to be
conducted (for "blue sky" review and qualification). The
blue sky review process is time consuming and expensive – too
expensive for a small offering of $5 million or less. Under Reg A+,
Tier 2 offerings are exempt from blue sky review and qualification,
though Tier 1 offerings are not. Thus, Tier 1 offerings, which may
now be for up to $20 million, must still be reviewed and approved
by the state securities commissions where the offering takes place.
The SEC decided to exempt Tier 2 offerings because of the higher
disclosure standards, including the provision of audited financial
statements in the offering circular and the ongoing requirement
that Tier 2 issuers must file annual, semi-annual and current
reports, which must include audited financial statements, for two
years following the closing of the offering.
The biggest benefit of Reg A+ may be for U.S. private issuers
that are deciding whether to go public. Underwriters and issuers
will be allowed to "test the waters" of investors
purchasing the securities both before and after filing the
issuer's offering circular. This could save costs as compared
to an IPO as some issuers will not go forward with an offering if
investors do not seem interested. As well, an issuer wishing to
register a class of its securities under the Securities Exchange
Act of 1934 (to become a U.S. reporting issuer) may do so by filing
a Form 8-A in conjunction with the qualification of the offering
circular (that follows Part I of Form S-1 or the Form S-11
disclosure model) in a Tier 2 offering. A Form 8-A is a one page
To determine whether the new Reg A+ is right for you, each
issuer will have to answer the question: is there a benefit to us
to use Reg A+ rather than (1) file an S-1 registration statement to
sell its securities, (2) find accredited investors and raise funds
in a Regulation D private placement offering, or (3) use a
crowdfunding platform? Based on the requirements and slow approval
process for Reg A+ offerings, we think that not many issuers will
choose the Reg A+ option.
Reg A+ is to become effective 60 days after publication of the
final rule in the Federal Register.
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.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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