With all eyes focused on the lifting on the ban on solicitation and the new proposed equity crowd funding rules, one major rulemaking proposal mandated under the JOBS Act did not get the attention it deserves: the new small offering exemption, in short: Regulation A+, that the SEC proposed on December 18, 2013.
The goal of Regulation A+ is to enable small businesses to raise capital without SEC registration and provide a realistic, maybe even more attractive alternative to Regulation D placements and equity crowdfunding. That’s why this author likes its potential.
New Regulation A would modify and expand Regulation A which exempts from registration securities offerings of up to $5 million in a 12-month period. The current regime is so cumbersome and costly, that practically no one uses it. In 2013, there was one offering made under Regulation A.
Under its new proposal, the SEC proposes two tiers of offerings, one $5 million and one $50 million in each 12-month period, each with its separate set of requirements. Tier 1 would still require the approval from state securities regulators, whereas Tier 2 wouldn’t.
The number of investors would be unlimited and would not have to meet the “accredited investor” standard. For Tier 1 offerings, investors would be able to invest no more than 10 percent of his or her income or net worth; for Tier 2, there are no limitations.
In both tiers, companies would have to file offering documents with the SEC and financial statements would need to be audited. Companies using Tier 1 would not be subject to ongoing reporting requirements, whereas companies under Tier 2 would have to file annual audited financial statements and certain information semi-annually.
Shares issued under either tier would not be restricted.
Companies would be permitted to test the waters with solicitation materials before and after filing the statement.
The SEC is open to entertain a third, intermediary tier, with commensurate requirements for eligibility, filing requirements and ongoing reporting. The comment period ends on March 11, 2014. Comment away if you have any suggestions on how to make Regulation A+ a real alternative to the other exemptions. The SEC really reads these letters. With that, have a great weekend!
Eckerle Law offers legal advice in a variety of transactional and regulatory matters and serves companies’ plenary business law needs. Its founder, Bettina Eckerle, is a veteran of Debevoise & Plimpton and Wachtell, Lipton, Rosen & Katz. She also served as the General Counsel of two companies en route to IPO. Please visit the Eckerle Law website for more details.