The Securities and Exchange Commission (SEC) recently adopted new regulations designed to provide small businesses with greater access to capital. The new rules, dubbed “Regulation A+,” expand Regulation A, which currently exempts from registration securities offerings of up to $5 million in a 12-month period.
“These new rules provide an effective, workable path to raising capital that also provides strong investor protections,” said SEC Chair Mary Jo White. “It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”
Over the years, I have published several lengthy articles describing the mechanics and the benefits of Regulation A offerings for smaller companies. Regulation A+ is a long awaited updating to higher limits, and with appropriate new accounting requirements, considering the substantial increases in the amounts now available to be raised. Under the new scheme, there would be two tiers of securities offerings, each with its separate set of requirements. Notably, Tier 1 would still require 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.
Tier 1 would consist of 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 would include 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.
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.
Regulation A+ will become final 60 days after publication by the SEC in the Federal Register.
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