How to Get Listed Onto NASDAQ Through Reg A+ Offering

Regulation A (aka Reg A+) effectively allows smaller companies to access public capital without undergoing the traditional IPO process. It allows companies to offer shares to the general public, not just accredited investors. For companies looking to enhance their visibility and credibility, a NASDAQ listing through a Reg A+ offering provides a platform that promises significant exposure and the potential for increased liquidity.

Reg A is a provision under the JOBS Act that allows smaller companies to raise up to $75 million from the public annually, subject to less stringent reporting and disclosure requirements than those for traditional public offerings. This mechanism is divided into two tiers, with varying levels of fundraising and disclosure requirements, providing flexibility according to the company’s size and needs. 

Listing on NASDAQ through a Reg A offering can enhance a company’s reputation, provide access to a broader investor base, and increase the liquidity of its shares, making it an attractive option for growth-focused businesses.

The benefits of a NASDAQ listing are manifold. It boosts a company’s visibility among investors and comes with increased media attention, pivotal for brand building and marketing. Being listed on such a prestigious exchange can also lead to greater trust and confidence from customers, partners, and potential investors.

Eligibility Criteria for NASDAQ Listings via Reg A

A company must meet specific financial, governance, and reporting criteria to be eligible for a NASDAQ listing through a Reg A+ offering. These include having a certain amount of net tangible assets, depending on the specific NASDAQ market tier, and adhering to corporate governance standards similar to those required of larger, established public companies. This includes having a majority of independent directors and appropriate corporate governance structures.

Furthermore, companies must demonstrate consistent revenue growth and provide a clear path to profitability, if not already profitable. They must maintain a minimum number of shareholders and meet certain trading volume requirements, ensuring sufficient public interest and liquidity in their shares.

Requirements for Reg A Companies to List on Nasdaq

While Regulation A+ via tier 2 offers less stringent reporting requirements initially, companies aiming for a NASDAQ listing typically need to transition to full Exchange Act reporting. This transition involves registering under Section 12 of the Exchange Act through filing Form 10 or Form 8-A. Specifically, an issuer who has conducted a Tier 2 offering may subsequently file Form 8-A to list its securities on a national securities exchange such as NYSE or NASDAQ. Upon doing so, the issuer will be subject to the complete reporting regime required for public companies under the Exchange Act.

Initial Application Requirements:

• Audited Financial Statements: Part of their initial listing application must include audited financial statements (Form 1-A). This requirement must align with U.S. Generally Accepted Accounting Principles (GAAP), or for foreign companies, be reconciled to U.S. GAAP as required by the SEC’s rules.
• Minimum Operating History: Any company listing on NASDAQ in connection with an offering under Regulation A must, at the time of approval of its initial listing application, demonstrate a minimum operating history of two years.

Ongoing Reporting Obligations:

• Transition to Full Exchange Act Reporting: Upon filing Form 8-A to list on national securities exchanges like the NASDAQ after a Tier 2 offering, issuers are subject to the comprehensive reporting requirements mandated for public companies under the Exchange Act.
• Comprehensive Reporting Filings: Companies are required to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K for specific events that could significantly impact the company’s financial status or operations. This full reporting regime replaces the Regulation A tier 2 ongoing filing requirements of submitting annual reports on Form 1-K, semi-annual reports on Form 1-SA, and current reports on Form 1-U to the SEC. Unlike Nasdaq-listed companies, OTC-listed companies have differing filing requirements.

Corporate Governance Requirements:

• NASDAQ-listed companies are required to meet specific corporate governance standards. This includes the composition of the board of directors, the establishment of independent audit committees, and adherence to NASDAQ’s code of conduct.
• Companies must regularly demonstrate compliance with NASDAQ’s listing standards, which cover aspects from financial viability and market value of publicly held shares to corporate governance.

By adhering to these requirements, Reg A issuers can effectively manage their transition to NASDAQ listing, ensuring compliance with broader regulatory and market expectations.

Steps in the Form 1-A Filing Process

Companies interested in being listed on the NASDAQ exchange must file Form 1-A. The steps involved in this process include:

1. Companies must prepare an offering statement: The company must compile an offering statement, including a notification, offering circular, and exhibits. This document outlines the business, its financial condition, and the terms of the securities being offered.
2. Companies must ensure the offering statement meets legal and accounting standards: This might involve hiring external auditors and legal advisors to verify the information and ensure compliance with SEC regulations.
3. Once prepared, the offering statement must be filed with the SEC for qualification: The SEC reviews the documents to ensure all regulatory requirements are met.
4. The SEC will review the submission and provide feedback: The company may need to amend its offering statement to address any issues raised by the SEC.
5. The SEC will “qualify” the offering: After all SEC concerns are addressed and the offering statement is amended accordingly, the SEC will qualify the offering, allowing the company to begin selling securities to the public.
6. The company can now market the offering to potential investors: This includes promotional activities and investor outreach to generate interest.
7. The company can proceed with the sale of securities as outlined in the offering statement: This phase involves managing investments and ensuring compliance with securities laws.\

To get started, companies can contact Colonial’s Edgar team.

How To Choose the Right Nasdaq Tier for Reg A Offerings

Choosing the right NASDAQ tier for a Reg A offering is critical. It depends on several factors, including the company’s size, the amount of capital it intends to raise, and its operational maturity. NASDAQ offers multiple market tiers, each with different benefits and requirements. 

NASDAQ Capital Market

This tier is tailored for smaller companies with lower initial listing requirements. It is often the entry point for companies going public, including those using Reg A for their offerings.

NASDAQ Global Market

This middle tier is accessible for growing companies that can meet moderate criteria for financial health and governance. It serves as a stepping stone to the Global Select Market. This tier is not accessible to companies undergoing a Reg A offering; however, after the Reg A offering, applicants need to convert to a fully converting company. Then, once they meet the liquidity and other requirements, they can apply for the NASDAQ Global Market. 

NASDAQ Global Select Market

This top tier requires the highest standards for financial strength, liquidity, and corporate governance. It is ideal for larger, more established companies that can meet its rigorous requirements. This tier is not accessible to companies undergoing a Reg A offering. After a successful Reg A offering, businesses can convert to a fully reporting company. Then, after significant growth, companies meeting the extensive requirements can apply for the NASDAQ Global Select Market.

Tips for Preparing Your Company for a NASDAQ Listing

When preparing a company for a NASDAQ listing, there are several tips to follow. They include:

• While all NASDAQ-listed companies must adhere to GAAP standards, Reg A+ issuers should ensure their financial audits are in line with the scaled disclosure requirements specific to Reg A+. This includes preparing for a potential transition to full SEC reporting standards if they aim to list on NASDAQ after the offering. US-based companies must provide audited financial statements, and foreign-based companies must reconcile their audited statements with SEC standards.
• Appoint independent board members and set up governance committees earlier in the process than typically required for traditional listings. This proactive approach helps Reg A+ issuers align with NASDAQ’s corporate governance standards well before the actual listing, facilitating a smoother transition.
• For Reg A+ issuers, building a public profile is crucial due to the direct-to-public nature of these offerings. Increase media exposure and engage in investor relations campaigns that not only attract but also educate potential investors about the unique aspects of investing in a Reg A+ offering.
• Ensure that your management team is not only aware of the standard responsibilities associated with a NASDAQ listing but also understands the nuances of Reg A+ offerings. This includes knowledge of ongoing reporting obligations, such as the annual reports on Form 1-K and semi-annual reports on Form 1-SA, which differ from traditional SEC reporting requirements.
• Engage with financial advisors and legal experts who have specific experience with Reg A+ offerings and NASDAQ listings. These professionals can provide invaluable guidance on tailoring your offering and compliance measures to meet both Reg A+ stipulations and NASDAQ’s listing criteria.

Common Reasons Reg A Offerings May Fail on NASDAQ 

Not every company applying for a Reg A offering will get approved. Some of the most common reasons why companies might not get approved for listing on the NASDAQ exchange include:

• Companies that fail to demonstrate enough market interest through their shareholder base or trading volume might not meet NASDAQ’s listing criteria.
• A lack of proper corporate governance, as required by NASDAQ, including inadequate board structures or failing to establish necessary governance committees, can result in disqualification. Companies must establish an audit committee consisting entirely of independent directors, with at least one member having financial expertise as defined by NASDAQ. NASDAQ also requires that a majority of the board be independent directors.
• Companies often fail to provide comprehensive financial records that reflect their current financial status, which leads to the rejection of their applications.
• Ongoing legal or regulatory issues can also be a significant barrier to approval, indicating potential risks to investors.
• Inaccurate or incomplete disclosure of company operations, financial conditions, or risk factors can lead to denying the Reg A+ offering.