July 01, 2014
Louis Taubman, Esquire
The SEC has recently disseminated a proposed rule, which would create a new category of exemption from securities regulation, which has been dubbed “Reg. A+”(although this is not its official name). Reg. A+, as proposed, is an extension of current Regulation A, which is an exemption from the registration requirements mandated by the Securities Act of 1933 (the “Securities Act”), applicable to small public offerings of securities that do not exceed $5 million in any 12-month period. The proposed rule would add a new section to the Securities Act by allowing for an exemption for small offerings of up to $50 million of securities in one year. This would create two classes of offerings: “Tier 1”—$5 million and under (Reg. A offering); and “Tier 2”—$5 million to $50 million (Reg. A+ offering).
In some ways, Reg. A+ “Tier 2” offerings will be similar to an IPO. In fact, however, for smaller companies, Reg A+ may be a more cost effective means to become public. Reg. A+, as proposed, would provide a viable alternative for companies who are attempting to access the public capital markets without being forced to comply with the more rigid disclosure standards of an IPO and at substantially less cost.
Some of the advantages to Reg A+, as currently proposed, are: “(a) that by conducting a Reg A+ offering a company would not automatically become subject to the full periodic reporting requirements of the Securities Exchange Act of 1934, although it would still be required to prepare and make available an audited financial statement; (b) a Reg A+ offering, would preempt state securities law registration requirements for any offering made through a broker/dealer, on an exchange, or to a qualified purchaser; (c) Reg A+ would allow for general solicitation; and (d) Reg A+ would allow for purchase by non-accredited investors.”
If Reg. A+ is approved in the form in which it has been approved, we believe that it will be an attractive alternative for small companies that wish to raise a significant amount of capital through an offering sold to the public. In particular, the ability to preempt state securities laws, known as blue sky laws, which was previously only available in the case of private placements conducted pursuant to Rule 506 of Regulation D and certain IPOs conducted onto listed exchanges or Nasdaq, should create a useful new tool for smaller companies that wish to access the public capital markets.
1) 17 CFR §230.251 (1933)
2) Securities and Exchange Commission, Jumpstart Our Businesses Act (JOBS Act) 4 Federal Reg. 401, (proposed December 13, 2013) (to be codified at 17 CFR §230, 232, 239, 240, 260)
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