On December 18, 2013, the SEC released proposed rules to modernize Regulation A, a securities offering exemption that was originally designed to help small issuers access capital without subjecting them to the costs and burdens of full SEC registration and oversight. As one of the key job formation initiatives contained in the bipartisan 2012 JOBS Act, Title IV mandated that the SEC fix the antiquated Regulation A exemption.
On March 25, 2015, the SEC finalized rules (often referred to as Reg A+ Tier 1 or Tier 2) allowing companies to raise up to $50 million in public offerings. We believe this new regulatory path has the potential to disrupt the financing landscape and to help connect innovative companies with the investment capital they need to grow.
The SEC’s final rule was adopted on March 25, 2015, and becomes effective summer of 2015. In the rule, the SEC expanded Regulation A into two tiers: Tier 1 for offerings of up to $20 million and Tier 2 for offerings up to $50 million. By removing key procedural obstacles and introducing common-sense investor protections, this new Regulation A+ framework creates a viable capital-raising alternative for issuers that want to remain independent and innovative. Below are some of the key provisions included in the SEC’s A+ rule:3:
- Proceeds: For Tier 2 offerings, there is an annual offering limit of up to $50 million in equity, debt or convertible securities, including no more than $15 million from selling security holders. For Tier 1 offerings, the annual limit is $20 million, with not more than $6 million from selling security holders.
- Testing the waters: Issuers may solicit interest in a potential offering with the general public, either before or after the filing of the offering statement, so long as any solicitation materials are preceded or accompanied by a preliminary offering circular.
- Blue Sky: Offerings made under Tier 2 are generally exempt from state securities law registration and qualification requirements. And while Tier 1 offerings would still be subject to state Blue Sky regulations, the states’ new Coordinated Review process has dramatically reduced the burdens associated with this process.
- Offering Circular: Issuers can confidentially file statements for SEC qualification. Offering circular must include audited financial statements and balance sheets for the two most recently completed fiscal year ends. The Offering Circular format is narrative disclosure, similar to what is required from smaller reporting companies in a prospectus, but more limited in certain respects.
- Ongoing Reporting: Issuers that conduct a Tier 2 offering must electronically file annual and semiannual reports with the SEC, but those who conduct Tier 1 offerings generally have no ongoing reporting obligations.
- Transferability | Liquidity for Investors: Securities sold in these offerings are not “restricted securities” under the Securities Act, and thus are freely tradable in the secondary market (unlike private issues).