On December 19, 2018, the SEC adopted final rules to allow current Exchange Act reporting companies to utilize Regulation A+, also known as the “mini-IPO offering”. Reg A+ provides an exemption from public registration, utilizing two separate offering tiers. Under Tier 1, companies can raise up to $20 million in a 12-month period, while Tier 2 allows issuers to raise up to $50 million in a 12-month period. The extension to allow SEC reporting companies was signed into law on May 24, 2018 as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act as documented in one of our earlier blog posts. Previously, companies that were subject to the SEC Securities Exchange Act reporting requirements were ineligible for the exemption. The new rules adopted by the SEC will allow a company’s Exchange Act reporting requirements to also count for the Reg A+ reporting requirements.
Why consider a Reg A+ offering
Reg A+ allows companies to raise capital with fewer offering restrictions and reporting requirements, generally providing for a smoother SEC review. The SEC and investment community believe that the new amendments will provide reporting companies more flexibility to raise capital, as they allow the use of crowdfunding as well as traditional investment banking solicitation. Through the new amendments, companies are able to more easily access capital markets, which should in turn benefit the entire market and increased entrepreneurship opportunities.
There are several comparisons between traditional registered offerings and Regulation A+ that should be noted.
- SEC reporting issuers are able to fully “test the waters” via the new regulation’s communication rules, while traditional registered offerings provide limits. For example, under registration statement offerings, EGCs may test the waters to institutions but not to individual investors. Regulation A+ allows testing the waters to all prospective investors.
- Blue Sky compliance and state registration is preempted for all 50 states under Regulation A+ but is not for traditional registered offerings. This provides tremendous cost savings and reduction in legal paperwork required by issuers.
- Raising funds on a crowdfunding website in addition to traditional solicitation.
- Issuers may rely on Safe harbor protections provided under the rule to allow the integration of prior securities offerings including those registered under the Securities Act, providing the ability to alternate between Regulation A and registered offerings which is helpful for companies seeking to obtain a funding from a variety of sources.
- Issuers can maintain a lower number of shareholders of record.
A disadvantage for SEC reporting companies is that Regulation A+ does not permit at-the-market offerings, limiting the appeal to larger investors.
How we can help
Colonial Stock Transfer provides Reg A+ transfer agent services including share issuance and registry, escrow, SEC filing and other services to help your company through its Reg A+ offering including going public, if desired. To learn more about our services, contact us.