There are plenty of foreign companies that want to make offerings in the United States. Some foreign companies might be wondering, can non-US issuers make a Reg A or Reg CF offering? If they are allowed to do so, are there any limits that they need to stay under? It is important to take a closer look at the rules and figure out what has to be done for companies to make an offering.
What Do the Rules Say?
First, it is important to take a closer look at the rules. Reg A is categorized under Rule 251(b)(1). According to this rule, Reg A can only be used by: “an entity organized under the laws of the United States or Canada, or any State, Province, Territory or possession thereof, or the District of Columbia, with its principal place of business in the United States or Canada.”
Then, it is important to look at Rule 100(b) for Reg CF. This law states that Reg CF cannot be used by any issuer that is not: “organized under, and subject to, the laws of a State or territory of the United States or the District of Columbia.”
Based on the rules above, it may seem that a foreign company cannot use crowdfunding to raise money in the USA. It might even appear that foreign companies might have a hard time making an offering in the United States at all; however, that is not necessarily the case, and there are legal options available.
How can foreign companies make legal offerings in the United States while navigating these rules?
How Can Foreign Companies Raise Money Legally in the United States?
There are a few options for companies that want to raise money legally in the United States under Reg A and Reg CF. Companies must consider the benefits and drawbacks of each option before they decide which is right for them. They include:
- Redomicile To the United States: This might be the most obvious option. It can work for foreign companies that want to raise money under Reg A. There are also a lot of tax consequences to consider, particularly when moving so many assets overseas. Companies will still require two years of audit tax statements using US GAAP taxonomy to comply with all requirements.
- Form a Subsidiary: Companies can also form a subsidiary that has its principal place of business in the United States. That allows the company to comply with Reg A; however, the money that is raised here has to be used for the subsidiary. It cannot simply be transferred overseas and used by the parent company. Then, the parent would be considered a co-issuer, requiring its own Form 1-A or Form C. That makes it very difficult for the company to access the money raised by the subsidiary.
- Create a Holding Company in the United States: It might be possible to create a holding company in the United States that can handle crowdfunding, but if the company is trying to raise money under Reg A, then the principal place of business still has to be in the United States, which leads to the same issue as the ones described in the options above.
- Create a New Company That Licenses the Foreign Product: This could be a promising option, but it depends on the individual circumstances of the situation. Any proceeds from the offering have to be used by the new company, not the licensing one, so it is important to consider the facts carefully. Companies that decide to go this route can raise money under either Reg A or Reg CF.
All businesses must think carefully about the best option for their needs. Because there are a lot of factors to consider, it is critical to work with a professional when raising money using these routes.
Can a Non-US Investor Participate in Crowdfunding Taking Place in the United States?
Yes, regardless of where someone lives, anyone can invest in a crowdfunding offering that is taking place in the United States. Regardless of whether this includes Title II, Title III, or Title IV, someone can participate in crowdfunding taking place in the states.
A few important points to keep in mind include:
- If an offering is taking place under Title II, then this is something that is only open to accredited investors. If someone is located outside of the United States, they can participate as long as they are considered an accredited investor.
- If someone is participating in an offering that is taking place under Title III, then there are investment limitations to keep in mind. These limitations are in place regardless of whether someone is located in the United States or outside of the United States. An investor outside of the United States can participate, but there are limits involved.
- If an offering is taking place under Title IV, a non-US investor can still participate; however, there are limits. The same limitations apply to both investors in the United States and investors outside of the United States.
While non-US investors can participate in crowdfunding that takes place in the United States, there are rules and limits to be followed depending on the type of crowdfunding campaign taking place. That is where it is critical to work with a professional team that has experience navigating this area.
Getting Started with Your Next Crowdfunding Offering
If you plan on making an offering to raise money, Colonial Stock Transfer can help you with stock transfer agent and cap table management services. Foreign companies are allowed to raise money under Reg A or Reg CF, but there are a lot of compliance requirements and hurdles to consider. Colonial Stock Transfer can guide you through the process:
- Registering and issuing your shares
- Working with secondary trading platforms and stock exchanges
- Meeting SEC and IRS requirements subject to Reg CF and Reg A companies
- Providing on-going shareholder support and stock transfer services (if needed)
- Filing necessary offering forms to the SEC and States for your EDGAR and Blue Sky filings
Contact Colonial Stock Transfer for help with your offering today.