SEC Adopts Final Rules for Regulation A+
On March 25, 2015, the Securities and Exchange Commission (“SEC”) adopted final rules to amend existing Regulation A and set forth what has commonly become known as Regulation A+. The amendments were mandated by the JOBS Act and are intended to broaden the applicability of existing Regulation A, providing U.S. and Canadian companies with access to capital — up to $50 million — without complying with traditional SEC registration requirements. Unlike certain other registration exemptions, Regulation A+ does not contain a blanket ban on general solicitation or purchases by non-accredited investors, provided that the disclosure requirements and purchaser limitations of Regulation A+ are met.
Regulation A+ provides for two tiers of offerings. The capital raising limitations of the two tiers of offerings are:
- Tier 1 Offerings – up to $20 million in a 12-month period. There is a $6 million limitation on offers by selling security holders that are affiliates of the issuer.
- Tier 2 Offerings – up to $50 million in a 12-month period. There is a $15 million limitation on offers by selling security holders that are affiliates of the issuer.
The following entities cannot utilize Regulation A+ exemptions:
- Existing SEC reporting companies.
- Blank-check companies.
- Investment companies, registered under the Investment Company Act of 1940, including business development companies (BDCs).
- Issuers of fractional interests in oil, gas and similar mineral rights.
If an offering is under $20 million, the issuer can elect to conduct the offering as either a Tier 1 or Tier 2 offering.
Sales by selling security holders (affiliate and non-affiliate) are limited to 30% of the total offering amount of any Regulation A+ offering conducted during the first 12 months following the commencement of an issuer’s initial Regulation A+ offering. After this period, secondary sales may generally be conducted within the offering limitation but will be subject to the other provisions of the regulation and any applicable contractual limitations.
All Regulation A+ issuers are subject to certain eligibility and disclosure requirements, and before an offering can be qualified the SEC must review and approve the offering materials. These requirements, which are designed to protect and guarantee the adequacy of information available to investors, may make Regulation A+ too costly and impracticable for some smaller issuers.
Issuers conducting Tier 2 offerings are subject to additional reporting requirements that include:
- Providing audited financial statements.
- Filing annual, semiannual and current event reports.
- Prohibiting the purchase by non-accredited investors of securities with values exceeding 10% of an individual’s annual income or net worth.
Generally, the registration and qualification requirements of state securities (“blue sky”) laws will be preempted for Tier 2 offerings. However, Tier 1 offerings must fully comply with state registration and qualification requirements. The costs and administrative burdens of complying with the state securities laws may be another impediment for smaller issuers to conduct Regulation A+ offerings.
Regulation A+ offerings will not be integrated with any prior offers or sales of securities or subsequent offerings or sales of securities that are either registered under the Securities Act, made pursuant to certain employee benefit plans, or take place more than six months after the completion of the Regulation A+ offering. In addition, Regulation A+ allows for continuous or delayed offerings by issuers conducting a Tier 2 offering, provided that the issuer is up to date with all Tier 2 reporting requirements and the issuer’s offering documents are updated to reflect certain fundamental changes.
These final rules will take effect after publication in the Federal Register for 60 days.
For more detailed information or to address a specific question regarding Regulation A+ offerings, please contact the Taft professionals listed here.
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