Is your company is considering a public offering? Does it plan to trade on an over the counter (OTC) market? If so, you may consider a Regulation A+ (Reg A+) IPO. Reg A+ IPOs are relatively new, streamlined, micro-IPO’s. They are different from traditional IPOs in that they are size-restricted, and have fewer regulations.
There are two tiers of Reg A+ offerings. Tier 1 caps annual capital at $20 million, and requires companies to provide an SEC filed offering circular. Tier 2 allows companies to offer a maximum of $50 million annually, also requires the provision of an SEC filed offering circular, but preempts blue sky laws.
On top of being quicker and easier, Reg A+ IPOs are also more affordable than conventional IPOs. This is especially true when a company seeks to list on an OTC market. Because Reg A+ offerings are designed to be small, they are well suited to small companies. Likewise, OTC exchanges are populated with, and catered towards, smaller companies.
OTC Markets
You will want to become familiar with OTC Markets Group before you file. They are the entity which facilitates the OTCQX, OTCQB and Pink Open market (formerly the OTC Pink market). The market on which you trade will depend on your company’s qualifications and goals. OTCQB is a venture market, created for relatively established companies looking to expand. OTCQX is exclusive, and difficult to qualify for. The Pink Open is easy to enter, but will only host stocks of the most speculative rank. For more information on these markets, click here.
To enter any of the three markets, you will need sponsorship from an SEC-registered, FINRA-approved broker-dealer. The BD will file a Form 211 with FINRA. This will allow OTC Markets to set up a ticker symbol and start quoting your stock. Read more about the Form 211 process here.
Preparing for a Reg A+ IPO
A company must have its house in order before it can begin an offering, Reg A+ or not. In the planning stages of you IPO, It is wise to seek legal consultation from a securities attorney. If you are planning to do a Reg A+ IPO, you may also want to begin planning your marketing strategy. It is useful to note that Reg A+ IPOs are allowed to market themselves in ways that traditional IPOs are not. For example: they may be included in email blasts, and create social media campaigns. They are also allowed to be hosted on the internet. This allows for a much broader marketing approach, which most experts suggest companies take advantage of.
During these preparation phases, it is also useful to establish a relationship with an independent auditor if you do not already have one. SEC filing cannot begin until a two-year audit is completed. Also, audit opinions are required for Tier 2 SEC filings. US-GAAP level auditors are required for companies trading on OTCQX.
It is only after the two-year audit that your attorney will be allowed to draft a Form 1-A filing to the SEC. Before the filing can occur, you will want to engage a transfer agent to manage your investor records and share issuance. Colonial Stock Transfer is available to do so. While the SEC reviews your company, a process which can take 60+ days, you can begin gathering marketing materials. If you are conducting a Reg A+ Tier 2 offering, you will only need to file blue sky notices and issuer dealer forms to a select number of states as outlined.
If you have not contacted a qualified broker-dealer to sponsor you, you should now. You will also want to arrange for an Escrow Agent.
Testing the Waters
It is useful to test the waters of your market before you make your offering. Your company is able to do this so long as it qualifies as an emerging growth company (EGC). Testing the waters involves contacting potential investors to gauge interest in your company. The SEC may request that you wait to do this until they finish reviewing your registration statement. After that, you will need to get in contact with those who are qualified to gauge your offering. These include qualified institutional buyers and institutional accredited investors.
Execution of Reg A+ IPO
Once your 1-A filing is complete, you can begin your offering. To receive funds on your first closing, you will need to meet an SEC qualified minimum. If capital raised is not in excess of this minimum, your Escrow Agent will not be able to release any funds to you. Luckily, the SEC regularly qualifies offerings with a zero minimum, eliminating this restriction.
When you decide that you have raised sufficient capital, you can close your offering. Many companies will keep their offerings open until they max out, but some close the doors early. Once the IPO is complete, your broker-dealer will be free to trade your shares in your selected market.
When your shares begin to trade, it is extremely useful to have a transfer agent to help you manage your records. Colonial Stock Transfer has been in operation for more than 30 years. We use this experience to optimize the services we provide to our customers. Our record updates are frequent, and we offer comprehensive technical support.