To Allow a Larger Number of Companies to Undertake Securities Offerings in Reliance on the Revamped Regulation A, Additional Changes are Forthcoming
Three years after being overhauled, issuers are beginning to take advantage of Regulation A with greater frequency. However, it still remains one of the lesser-used capital-raising tools. One reason for this is that only a few brokerage firms are presently underwriting Regulation A offerings.
To allow a larger number of companies to undertake securities offerings in reliance on the revamped Regulation A, additional changes are forthcoming. Under the Economic Growth, Regulatory Relief, and Consumer Protection Act (Act), which President Donald Trump signed into law on May 24, 2018, the Securities and Exchange Commission (SEC) must again revise Regulation A+, this time to allow public companies to use it to offer securities.
Prior Amendments to Regulation A+
Regulation A allows certain issuers to raise capital without going through the costly process of conducting a registered public offering or complying with the accredited investor and/or solicitation restrictions associated with Rule 506(b) or 506(c) private placements under Regulation D. Issuers are also authorized to gauge investor interest by “testing the waters.”
Despite these benefits, Regulation A remains one of the most infrequently used exemptions to SEC registration. Prior amendments to Regulation A, dubbed “Regulation A+,” now allow smaller companies to offer and sell up to $50 million of securities in a 12-month period. Enacted as part of the JOBS Act, the changes aimed to make the exemption more widely available and to provide small businesses with greater access to capital.
Regulation A+ includes two tiers of securities offerings, each with its separate set of requirements. Tier 1 covers securities offerings of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer. Meanwhile, Tier 2 includes securities offerings of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.
Notably, Tier 1 still requires the approval from state securities regulators, whereas the rules provide for the preemption of state securities law registration and qualification requirements for Tier 2 securities. In addition to the basic requirements set forth in Regulation A, companies conducting Tier 2 offerings are subject to other requirements. For instance, they are required to provide audited financial statements and file annual, semiannual and current event reports with the SEC. In addition, securities purchases for non-accredited investors are limited to no more than 10 percent of the greater of the investor’s annual income or net worth.
Expansion of Regulation A+
Under the Act, the SEC will again expand the reach of Regulation A. The exemption currently excludes public reporting companies, which means that they must generally rely on fully registered public offerings to raise capital. To increase the number of companies that can take advantage of Regulation A, the Act specifically eliminates the requirement that an issuer not be subject to certain reporting requirements under the Securities Exchange Act of 1934, immediately before an offering.
Because Regulation A offers a streamlined and less costly SEC review process, the new changes are welcome news for companies seeking to raise capital. For companies conducting Tier 2 offerings, the exemption also allows companies to bypass state blue sky review. Under the Act, the periodic reports filed by public reporting companies would be deemed to meet the reporting and disclosure requirements under a Tier 2 offering.
The latest changes do not take effect immediately. Rather, the Act requires the SEC to enact amendments to Regulation A to implement its provisions. We expect to see an increased number of brokerage firms underwriting Regulation A offerings when the new changes take effect. We will continue to track the process of the regulatory changes and post updates as they become available.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work at 201-806-3364.
Breach of Contract Explained: Types and Consequences
Breach of contract disputes are the most common type of business litigation. Therefore, nearly all New York and New Jersey businesses will likely have to deal with a contract dispute at least once. Understanding when to file a breach of contract lawsuit and how long you have to sue for breach of contract is essential […]
How to Dissolve a Corporation in New Jersey: A Step-by-Step Guide
Closing your business can be a difficult and challenging task. For corporations, the process includes formal approval of the dissolution, winding up operations, resolving tax liabilities, and filing all required paperwork. Whether you need to understand how to dissolve a corporation in New York or New Jersey, it’s imperative to take all of the proper […]
Gross Lease vs. Net Lease: Understanding the Key Differences
Commercial leases can take a variety of forms, which is often confusing for both landlords and tenants. Understanding the different types, especially the gross lease structure, is important when selecting the lease that best suits your needs. One key distinction between lease types is how rent is calculated and paid. This article addresses the two […]
What to Do If You Are Impacted by a Retailer Bankruptcy Part 2
Over the past year, brick-and-mortar stores have closed their doors at a record pace. Fluctuating consumer preferences, the rise of online shopping platforms, and ongoing economic uncertainty continue to put pressure on the retail industry. When a retailer seeks bankruptcy protection, a myriad of other businesses are often impacted. Whether you are a supplier, customer, […]
The Current Administration's Proposals for the Financial Services and Banking Industries Will Affect Your Business
Since his inauguration two months ago, Donald Trump’s administration and the Congress it controls have indicated important upcoming policy changes. These changes will impact financial services policies and priorities. The changes will particularly affect cryptocurrency, as well as banking rules and regulations. Key Regulatory Changes in Cryptocurrency For example, in the burgeoning cryptocurrency business environment, […]
Tips for Commercial Landlords Impacted by Wave of Retailer Bankruptcies Part 1
The retail sector has experienced a wave of bankruptcy filings over the last year. Brick-and-mortar businesses in financial distress include big-name brands like Big Lots, Party City, The Container Store, and Vitamin Shoppe. When large retailers seek bankruptcy protection, they are not the only businesses impacted. Landlords can be particularly hard hit. While commercial landlords […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
