Article
Article
05.06.15
On March 25, 2014, the Securities and Exchange Commission (SEC) adopted final amendments to Regulation A under the Securities Act of 1933, or what is now being referred to as Regulation A+.1 While much of the existing framework of Regulation A was preserved, Regulation A+ expands the prior exemption to allow an issuer to offer and sell up to $50 million of securities over a 12-month period in a public offering, without complying with the registration requirements of the Securities Act. Regulation A+ was adopted to implement the rulemaking mandate of Title IV of the Jumpstart Our Business Startups Act (or JOBS Act), which was signed into law in April 20122 and differs slightly from the amendments to Regulation A as proposed by the SEC in December 2013.3
This White Paper summarizes the impetus for and most important provisions of Regulation A+, as well as the possible implications of the Final Rules.
Background
Regulation A, as it existed prior to the Final Rules, provided an exemption from registration requirements of Section 5 of the Securities Act for certain smaller securities offerings of up to $5 million by private companies. Historically, Regulation A has been rarely utilized as a capital raising tool. This lack of use is widely attributed to two factors: (i) the offering costs, and burden of SEC review, relative to the dollar amounts being raised, and (ii) the necessity of complying with state blue sky laws in each state where an offering is conducted. From 2012 to 2014 only 26 Regulation A offerings were qualified by the SEC.4
Title IV of the JOBS Act, entitled “Small Company Capital Formation,” was intended by Congress to expand the use of Regulation A by solving some of the perceived limitations of the exemption. Section 401 of the JOBS Act amended Section 3(b) of the Securities Act by designating existing Section 3(b), the SEC’s exemptive authority for offerings of up to $5 million, as Section 3(b)(1), and creating a new Section 3(b)(2).5 New Section 3(b)(2) directed the SEC to adopt rules adding a class of securities exempt from the registration requirements of the Securities Act for offerings of up to $50 million of securities within a 12-month period.6
Final Rules
Eligible Issuers
In order to be eligible to issue securities pursuant to the Regulation A+ exemption, an issuer must be organized in and with its principal place of business in the United States or Canada.7 The Regulation A+ exemption is unavailable to:
Eligible Securities
The securities that may be offered pursuant to the Regulation A+ exemption are limited to equity securities, including warrants; debt securities and debt securities convertible into or exchangeable into equity interests, including guarantees of such securities.9 Asset-backed securities have been specifically excluded from the Final Rules.10
Read more: Can Regulation A+ Succeed Where Regulation A Failed