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SEC Issues Final Rules on Regulation A+

Final Rules Will Provide Small Companies Access to Raise Capital

The SEC issued a final ruling for smaller companies looking to obtain funding from external investors, known as Regulation A+. These rules are a revised and expanded implementation of Regulation A of the Securities Exchange Act. If eligible, smaller companies will be able to offer and sell as much as $50 million in equity in a one-year period relying on the Regulation A exemption from the registration requirements mandated by the Securities Act. The ruling is subject to the regulations passed by Title IV of the JOBS Act.

Tiers of Offerings of Securities

Pursuant to Tier 1 of the ruling, small companies will be allowed to offer securities of up to $20 million dollars within one year of the offering date. Affiliate shareholders of the company are limited to $6 million in offerings. Pursuant to Tier 2 of the ruling, securities can be offered up to a limit of $50 million within one year of the offering date. Affiliate shareholders of the company are limited to $6 million in offerings. Each of the rulings are subject to certain requirements that companies must abide. The Tier 2 offerings require additional disclosures and reporting from issuers.

Requirements of each Tier of the Regulation

Companies that have a principal place of business outside of the United and Canada are not eligible for the offerings. In addition, issuers would not be eligible for the exemption if the following applies:

  • Are an SEC reporting entity or are a particular investment company.
  • Do not have a business plan or the only intent of their business is to merge with or acquire another company.
  • Looking to offer and sell asset-backed securities or interests in oil, gas or other mineral rights.
  • Subjected to any order of the Commission under section 12(j) of the Securities Exchange Act within the five years of the offering date.
  • Are delinquent in ongoing reporting for the two years preceding the offering date.
  • Subject to disqualification pursuant to the "bad actor" disqualification rules.

Securities offered in a Tier 2 offering are exempt from the regulations of Section 12(g) of the Securities Exchange Act, allowing for free-trading shares if each of the following provisions are met:

  • Has appointed a transfer agent registered with the SEC.
  • Maintains Tier 2 reporting obligations
  • Maintains Current Reporting Status in its annual and quarterly reporting.
  • Holds a float of $75 million or less as of the last business day of the second quarter of its annual period. If the float is unavailable, the issuer must have revenues of $50 million or less as of the most recently completed fiscal year.

Issuers that exceed the dollar amount and the Section 12(g) registration thresholds will be subject to a 2-year transition period in which it cannot register classes of securities. The issuer must adhere to all its ongoing reporting requirements pursuant to Regulation A. Additionally, Issuers that offer more than $20 million have the option to partake in Tier 1 or Tier 2 offerings. Regulation A+ is subject to become effective within two months after publication in the Federal Register.

Colonial can assist your company with its securities offerings and transfer agent compliance needs.

Published: April 22, 2015

Author: Dan Carter