United States: SEC Adopts "Regulation A+" Rules To Facilitate Capital Raising By Private Companies

Last week, the Securities and Exchange Commission ("SEC") adopted final rules1  amending Regulation A (referred to as "Regulation A+") under the Securities Act of 1933, as amended (the "Securities Act"), as mandated by the Jumpstart Our Business Startups ("JOBS") Act. The new rules, which are part of the government's efforts to give private companies greater access to capital, will expand and modernize existing Regulation A by providing new registration exemptions for privately-held companies making securities offerings of $50 million or less within a 12-month period. Regulation A+ will also allow companies to "test the waters" by using preliminary sales literature either before or after filing an offering statement to determine whether there is interest in their proposed offerings, provided that any sales literature used after publicly filing an offering statement is preceded or accompanied by a preliminary offering circular, or contains information as to where prospective investors can obtain a preliminary offering circular. Regulation A+ offerings remain subject to the antifraud and other civil liability provisions of the federal securities laws.

The new rules provide for two tiers of offerings: Tier 1 offerings may raise up to $20 million of securities in a 12-month period, and Tier 2 offerings may raise up to $50 million of securities in a 12-month period. Companies issuing up to $20 million of securities may choose whether to proceed under Tier 1 or Tier 2. The discussion below summarizes key terms of the new Regulation A+ rules.

Tier 1 Requirements

Under the new rules, a Tier 1 offering may raise up to $20 million (increased from $5 million in the SEC's earlier proposal) of securities in a 12-month period. Small companies may find a Tier 1 offering attractive because there are no limitations or restrictions on investors or on resale of the company's securities, except that the total securities sold by an affiliate security-holder generally may not exceed 30% of the aggregate offering (e.g., for a $20 million offering, not more than $6 million may be sold by affiliate security-holders of the company). Additionally, registration requirements are less onerous than for Tier 2; a Tier 1 issuer must file a Form 1-A ("Offering Circular"), a current balance sheet and income statements for the previous two fiscal years with the SEC via EDGAR. There are no ongoing reporting obligations under a Tier 1 offering other than to file exit reports.

However, Tier 1 offerings have drawbacks with respect to state securities laws. Tier 1 offerings are not federally preempted, and thus are subject to potentially time-consuming and costly state "blue sky" registration requirements. Nevertheless, the North American Securities Administrators Association ("NASAA") has recently implemented a coordinated review program, which seeks to reduce the time and cost associated with state registration, and to streamline the registration process for a companies offering securities across multiple states.

Tier 2 Requirements

Tier 2 issuers may raise up to $50 million of securities in a 12-month period. Like Tier 1 offerings, the total securities sold by an affiliate security-holder may not exceed 30% of the aggregate offering. However, unlike Tier 1, Tier 2 offerings do impose limitations on securities offered to non-accredited investors. Specifically, offerings to non-accredited investors under Tier 2 are limited to no more than 10% of the greater of the investor's annual income or net worth, if the investor is a natural person, and to no more than 10% of the greater of annual revenue or net assets at fiscal year end, if the investor is a non-natural person. Companies are required to notify prospective investors of the investment limitation, but investors will be able to self-certify their income or net worth.

Although not as extensive as those for public companies, Tier 2 offerings also impose heightened disclosure and registration requirements, as well as ongoing reporting obligations. Specifically, in addition to the Tier 1 registration requirements, Tier 2 issuers must provide audited financials in accordance with GAAP, and must publicly file annual, semiannual and current event reports with the SEC via EDGAR. Despite the burden of the increased filing requirements, however, companies may find a Tier 2 offering attractive because it provides federal preemption. Thus, unlike Tier 1, companies under a Tier 2 offering will not be required to register under multiple states' blue sky laws.

Eligibility

The new rules will provide exemptions for privately-held companies in the United States or Canada that seek to offer equity securities, debt securities and securities convertible or exchangeable into equity interests. Companies already required to file on-going reports with the SEC and certain other specified types of companies will not be eligible to rely on the Regulation A+ exemption.2

Effective Date

The rules will become effective 60 days after publication in the Federal Register (June 2015). As required by the JOBS Act, the SEC will review the Tier 1 and Tier 2 offering limitations every two years. 

Footnotes

1. See Release Nos. 33-9741; 34-74578; 39-2501, "Amendments to Regulation A" (March 25, 2015), which may be found at: http://www.sec.gov/rules/final/2015/33-9741.pdf. Our earlier client alert on the proposed Regulation A rulemaking may be found at: http://www.wcsr.com/resources/pdfs/cs011314.pdf (January 2014). 

2. Specifically, the following issuers will be unable to offer securities pursuant to a Regulation A+ exemption:

  1. Companies subject to the on-going reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act");
  2. "Blank check" companies, i.e., companies that have no specific business plan or purpose, or that have indicated their business plan is to engage in a merger or acquisition with an unidentified company, entity or person;
  3. Registered investment companies;
  4. Companies offering asset-backed securities or fractional undivided interests in oil, gas or other mineral rights;
  5. Companies that are required to but have not filed ongoing reports as required under Regulation A in the previous two years;
  6. Companies that have had their registration revoked under Section 12(j) of the Exchange Act in the past five years; and
  7. Bad actors, i.e., companies that engage in non-compliance or abuse of SEC rules.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions