Regulation A+: Quicker and Cheaper Access to Capital for Smaller Companies

“Regulation A+ … promises to provide a meaningful new tool for private issuers wishing to access the capital markets.” (Randal Jones and Richard Raymer of Dorsey & Whitney)

What’s better than an “A”? An “A+,” of course…

OK, that’s probably not why the Securities and Exchange Commission recently proposed new rules to Regulation A. But smaller issuers that could benefit from increased access to capital markets as contemplated in Regulation A+ are likely to give the changes a passing grade.

For your reference, here’s a look at what experts writing on JD Supra have to say about the proposed Regulation A+:

SEC’s Proposed Rules on “Regulation A-Plus” Indicate a Streamlined Vehicle for Raising up to $50 Million in Capital (Armstrong Teasdale):

“Proposed federal rules released on December 18 may have the effect of making it quicker, less expensive and more worthwhile for businesses to raise up to $50 million in capital under a once-obscure and seldom-used registration exemption. When the proposed rules take effect, companies will be able to raise money by selling securities that can be generally advertised and sold to the general public without concern for traditional investor ‘sophistication’ requirements or the customary delays and costs related to full federal and state registration.” Read on>>

The SEC Revamps Regulation A with Proposed Regulation A+ (Derick Kauffman, Ross MacConnell, and David Rosenthal of Dechert):

“Only select companies would be eligible to engage in Regulation A+ offerings. Like Regulation A, Regulation A+ is limited to companies organized and based in the United States and Canada. Moreover, Regulation A+ is unavailable to companies with a class of securities currently registered under the Securities Exchange Act of 1934; investment companies; blank check companies; issuers of fractional undivided interests in oil, gas, or other mineral rights; private funds; and ‘bad actors’ as defined under Rule 262 of the Securities Act. Regulation A+ is available for offerings of equity securities and debt securities, including convertible or exchangeable debt securities, but not for offerings of asset-backed securities.” Read on>>

Summary Of Proposed Amendments To Regulation A (David Jenson, Stephen Quinlivan, and Jill Radloff of Stinson Leonard Street):

“The proposed rules update Regulation A to require electronic filing of offering statements on the EDGAR System.  A Form 1-A would be developed that is a fill-in-the-blank form similar to Form D and then other disclosure documents and exhibits would be attached.  Ongoing reports would also be filed electronically.  The SEC is also proposing an access equals delivery model for Regulation A final offering circulars.  The SEC also proposes to allow the non-public submission of draft offering statements by issuers of Regulation A securities.” Read on>>

SEC Releases Long Awaited Rules on Regulation A+ (Randal Jones and Richard Raymer of Dorsey & Whitney):

“Like current Regulation A, securities issued under the proposed rule would not be subject to restrictions on transfer imposed by federal securities laws. Issuers relying on Tier II of Regulation A+ would be required to provide ongoing disclosure, as described below, but would not ordinarily become subject to the reporting and most other requirements of the Securities Exchange Act of 1934, as amended. As a result, Regulation A+ issuers would not be subject to Sarbanes-Oxley, insider trading and reporting rules, and SEC proxy rules, among other requirements of the Securities Exchange Act.” Read more>>

SEC Proposes Rules for “Regulation A+” Offerings (Jonathan Weiner and Mark Wood of Katten Muchin Rosenman):

“The proposed rules would permit eligible issuers seeking to offer securities under either Tier 1 or Tier 2 to submit draft offering statements to the SEC on a non-public basis for review prior to filing; permit use of ‘test the waters’ solicitation materials both before and after the filing of the offering statement; and modernize the offering process, including by requiring electronic filing of offering materials and permitting issuers and intermediaries to satisfy prospectus delivery requirements under an ‘access equals delivery’ model. Tier 2 offerings would be subject to additional requirements under the proposed rules.” Read on>>

No Easy A: SEC Proposes Rules For Regulation A+ (Brian Korn and Bryan Tham of Pepper Hamilton):

“In connection with the proposed rules, an SEC commissioner has stated that, subject to public comments, if any, and further consideration by the SEC, the final rules may include an intermediate third tier, which may cover Regulation A offerings of between $10 million to $15 million, pre-empt state blue sky laws and have less-extensive continuing disclosure obligations than Tier 2 offerings. Maybe this will be called Tier 1½.” Read on>>

A+ Indeed: The SEC’s Proposed Rules Amending Reg A (Marty Dunn, David Lynn, Anna Pinedo, and James Tanenbaum of Morrison & Foerster):

“The proposed rule would revise the qualification process for Regulation A offerings and require that an offering statement could only be qualified by an SEC order, so that the SEC Staff has an opportunity to review and comment on the offering statement before it becomes effective. The proposed rule would require offering statements to be submitted through EDGAR. An issuer or broker-dealer would be required to deliver only a preliminary offering circular to prospective purchasers at least 48 hours in advance of sale when a preliminary offering circular is used to offer securities. A final offering circular would continue to be required to accompany or precede any written communications that constitute an offer in the post-qualification period. Reliance on electronic delivery would require that investors consent to electronic delivery.” Read on>>

SEC Proposes Rules for Regulation A+ (Jason Daniel and Terry Schpok of Akin Gump):

“The duty to file reports would be suspended while an issuer that has sold securities under Regulation A becomes a public reporting company under the Exchange Act because it either has a class of securities registered under that act or it has sold securities pursuant to a registration statement. As with public companies, the obligation to file may also be suspended when the class of securities sold under Regulation A is held of record by fewer than 300 persons.” Read on>>

Reg A+ Exemption (Anna Pinedo of Morrison & Foerster):

“The proposed rules would incorporate a new investment limit.  The proposed rule would limit the permissible amount to be invested by any individual to the greater of 10% of the individual’s net worth or net income.  In addition, the proposed rules contain certain ongoing reporting requirements.  An issuer that has conducted a Regulation A offering will be required to make certain limited ongoing SEC filings.” Read on>>

Read more on Regulation A at JD Supra Business Advisor>>