March 25, 2015 — By: Kim Wales; NY, NY
Today marks another milestone in the life cycle of the Jumpstart Our Business Startups Act (JOBS Act) — Regulation A+ is approved. With the three-year anniversary only two weeks away, the Securities and Exchange Commission voted unanimously on the adoption of Title IV: Regulation A+ for small securities offerings. This is a huge step towards furthering democratizing the capital markets for small-to-medium enterprises.
Here are some highlights for the adoption of Regulation A+, note that the final rules must sit in the Federal Register for 60 days before buyers and sellers can transact business. This date will be late May/ early June 2015..
1. State Blue Sky pre-emption for tier 2 offers. While tier 1 issuers can raise up to $20m rather than the limited $5m maximum for up to 12 month period. The coordinated review process by NASAA will only be used for tier 1 offers.
2. Regulation A+ offerings are exempt from the mandatory 12(g) registration thresholds – so long as the issuer engages services of a registered transfer agent, remains subject to and current in a tier 2 reporting obligation and meets public float and revenue requirements similar to those in small reporting companies and exchange act rules. The details of the reporting rules should be included in the final rules.
3. The JOBS Act mandates the Commission to review tier 2 limits every two years.
4. Issuers raising capital using Regulation A+ may submit draft offers to the SEC staff, use electronic filing process on EDGAR, ability to use test the waters solicitation materials both before and after the filing of the application process.
5. Additional Tier 2 Requirements:
– Financial statements included in the circular will be audited annually.
– Semi and annual outgoing reports and current event updates that are scaled to Regulation A offerings.
– Limit the number of securities, non-accredited investors can purchase, up to 10% of the greater of annual income of net worth natural person; and
– Limit the purchase of 10% of the greater of annual revenue or net assets of unnatural persons.
– Issuers will use Form 8a — short form registration statement concurrently with a qualification Regulation A offering statement to register securities class 12(b) or 12(g) of the total package of investor protections to be included in the implementation of Reg A offer.
It is important to know that Regulation A+ opens the gateway for “qualified purchasers,” all investors (accredited and non accredited), to take part in the capital markets. In addition, issuers can generally advertise and solicit investors since Regulation A+ is a public offering for small companies.