May 26, 2015
On March 25, the Securities and Exchange Commission (the “Commission”) formally adopted final rules, which update and expand Regulation A, an exemption from the registration requirements mandated by the Securities Act of 1933 (the “Securities Act”). These newly adopted rules, which have been dubbed “Reg. A+, provide an exemption for small offerings of up to $50 million worth of securities in any one year period.
Some of the highlights of the new rules are as follows:
- Regulation A offerings will now consist of two classes of offerings: “Tier 1”—up to $20 million, including no more than $6 million by selling security holders; and “Tier 2”— up to $50 million, including no more than $15 million by selling security holders.
- Allow for “testing the waters” with certain qualified investors.
- Tier 2 offerings made to “qualified purchasers,” which include accredited investors and non-accredited investors that meet certain requirements, will not require state blue sky registration.
- Requirement that Offering Statements and ongoing reports be filed on Edgar.
- Less burdensome initial and ongoing reporting requirements. Tier 2 Issuers will need to include audited financials in Form 1-A Offering Statements and will be required to file Semi-Annual reports with the Commission, which include a Form 1-K Annual Report and Form 1-SA Semi-annual report.
- Permit the use of Form 8-A for Securities Exchange Act of 1934 (“Exchange Act”) registration by Tier 2 issuers.
Some of the limitations of the new rules are as follows:
Inclusion of “Bad Actor” disqualifications currently applicable to private offerings conducted pursuant to Rule 506.
- Limitations on the qualification for reliance on Rule 144 “reasonably current” public information requirement for issuers filing semi-annual reports. Issuers will, however, be permitted to file quarterly reports on Form 1-U, the Reg A+ equivalent of the Form 8-K Current Report, which the Commission has stated would satisfy the requirements of Rule 144.
- Notwithstanding the blue sky exemption for Tier 2 offerings, state securities authorities still retain enforcement powers with regard to fraud and other violations, as well as the ability to require consent to service of process and levying of filings fees.
- Notwithstanding the blue sky exemption for Tier 2 offerings, state securities authorities still retain enforcement powers with regard to fraud and other violations, as well as the ability to require consent to service of process and levying of filings fees.
- The rules expand the category of disqualified issuers to include issuers that have been subject to a deregistration proceeding pursuant to Section 12(j) of the Exchange Act.
All in all, we believe that this is one of the most significant rule changes for smaller issuers in recent memory. The new rules should provide greater access to capital, increased liquidity and lessened ongoing financial burdens to companies that are covered by the rules.
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