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Is Your Company Eligible for Registration Exemption Under Regulation A+?

Mihir Gandhi

Under the Securities and Exchange Commission's (SEC)'s newly-adopted final rules for an updated and expanded Regulation A (called Regulation A+), as required by Title IV of the Jumpstart our Business Startups (JOBS) Act, private companies will be permitted to make exempt public offerings of up to $50 million within any 12-month period. But not every company will be eligible for the exemption. Here's a brief look at who is eligible.

Location Eligibility

Exemption from registration will be limited to United States and Canadian companies. The issuer must be organized and have its principal place of business in either country. No other foreign companies will be eligible for exemption under Regulation A+.

Companies Ineligible

Regulation A+ exemptions would not be available to:

  • Investment companies (including "business development companies")
  • Companies that are already SEC reporting companies
  • So-called "blank check" companies that don't have a business plan, or whose plan is simply to merge with or acquire another as-yet-identified company
  • Certain companies issuing interests in mineral rights, gas, or oil
  • Any company that has been subject to any order from the SEC under Section 12(j) of the Exchange Act (revoking registration for public trading) within the last 5 years
  • Any company that has not, for the preceding two years, filed reports as required by the rules
  • Any company that is disqualified as a "bad actor" because of past actions by the company or its controlling persons.

New Filing Requirements

As before, all offerings under Regulation A must be made through a Form 1-A offering statement filed with the SEC. Regulation A+ eliminates the possibility of automatic qualification and requires SEC staff review and formal notice of qualification for all offering statements. As before, a company can "test the waters" by soliciting indications of interest in the securities before qualification of the offering.

New Tier Structure

Regulation A+ establishes two new "tiers" of offerings. Tier 1 covers securities offerings up to $20 million, up from $5 million, within any 12 month period, and retains many of the pre-existing requirements from Regulation A. Tier 2 now allows offerings up to $50 million a 12-month period. Under Tier 2, however, companies must adhere to more rigorous reporting requirements.

Since the 1930s, Regulation A has provided rules under which a company could publicly offer and sell a limited amount of securities to potential investors and be exempt from the process of registering the offer. The use of this exemption under Regulation has been diminishing as other Securities Act exemptions have become available or companies simply chose to register their offers. In adopting Regulation A+ the SEC seeks to revive Regulation A as a middle path - for companies that are eligible - that provides advantages over private offerings without the full cost and burdens of registration.

Reg A+ a bit too much for you? Take a look at Rule 506(c) which lets you generally solicit investors so long as you verify that actual investors are accredited investors. At VerifyInvestor.com, we have developed confidential, reliable and simple processes to make it easy for you to comply with federal laws. Visit VerifyInvestor.com or call us at 818-925-6701.

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