On June 30, 2025, the SEC staff struck the right balance with its no-action letter granting relief to BirchBioMed, Inc. from the requirement to file an annual report on Form 1-K under Regulation A. Notwithstanding that BirchBioMed, Inc. did not qualify for suspension under Rule 257(d) of Regulation A, the SEC staff agreed with the company that the public policy considerations underlying the reporting requirements of Regulation A are not present because BirchBioMed, Inc. has no shareholders to whom the required ongoing reporting obligations are intended to benefit, and there is no secondary market that has or could develop as a result of the Regulation A offering.
Regulation A was adopted by the SEC to provide an exemption from registration for smaller value securities offerings. Regulation A has two offering tiers: Tier 1, for offerings of up to $20 million in a 12-month period; and Tier 2, for offerings of up to $75 million in a 12-month period. Once a Tier 2 offering has been qualified, the issuer is required to file with the SEC an annual report on Form 1-K for the fiscal year in which the offering statement became qualified and for any fiscal year thereafter, unless the issuer's obligation to file such annual report is suspended under Rule 257(d) of Regulation A.
Rule 257(d) of Regulation A permits the suspension of the obligation to file an annual report on Form 1-K if (i) the issuer has fewer than 300 shareholders of record and (ii) has filed all reports required to be filed since it became a Regulation A reporting company, provided that suspension of reporting obligations under Regulation A is not available to issuers during the fiscal year in which a Tier 2 offering statement is qualified. Because BirchBioMed, Inc.'s Tier 2 offering statement was qualified during its current fiscal year, the company failed to meet the second requirement that would allow for suspension of the filing obligation. The relief granted to BirchBioMed, Inc. comes on the heels of the SEC's review of Regulation A.
At the May 6, 2025, meeting of the SEC Small Business Capital Formation Advisory Committee Meeting, Paul Atkins, Chairman of the SEC, highlighted the advisory committee's plan to discuss Regulation A. He noted that the amount raised under Regulation A is less than one percent of the amount of capital raised under Regulation D even though the SEC raised the offering limit under Regulation A from $50 million to $75 million in March 2021. He further stated that the overall number of Regulation A offerings has declined the past two years. Encouraging feedback from committee members as to what improvements can be made to facilitate greater use of Regulation A, Atkins said, "I intend for the Commission to focus on providing meaningful pathways for entrepreneurs to obtain the capital that they need to execute their innovative ideas and grow their companies in both the private and public markets."
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