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.
IP Infringement: What Steps Can You Take If You're Affected?
IP infringement occurs when someone uses your intellectual property without your permission or beyond the scope of the permission you granted. Common examples of IP infringement include copying a product’s patented features or using a trademarked logo in a way that is likely to confuse consumers about the source or affiliation of goods or services. […]
Public Allegations, Unfinished Investigation: What New Jersey Businesses Should Do Next
When facing public allegations of wrongdoing, companies should not let the speed of the public conversation dictate the speed of an investigation. An investigation designed to confirm a preferred narrative rather than establish the facts can create serious problems later, particularly if litigation, regulatory scrutiny, or employment claims follow. Key Takeaways When public allegations surface […]
BESS Interconnection: Managing Grid, Cost, and Schedule Risk
For battery energy storage system (BESS) developers, securing equipment and site control is only part of the development equation. A project must also connect to the electric grid, and increasingly, BESS interconnection is one of the biggest sources of schedule, cost, and contractual risk. Key Takeaways This article is Part 3 of our Battery Storage […]
Navigating Director and Officer Liability in Times of Financial Distress
Director and officer liability increases sharply when a company is in financial distress. Decisions that would draw little attention in a healthy business can later be challenged by creditors, shareholders, bankruptcy trustees, and regulators as breaches of fiduciary duty, fraudulent transfers, or oversight failures. Understanding where that exposure comes from, and how to manage it, […]
Before You Buy: Managing Real Estate and Permitting Risk for BESS Projects in New York and New Jersey
For developers pursuing battery energy storage system (BESS) projects, finding the right property is only the beginning. BESS site selection is as much a legal and transactional exercise as a real estate decision, with risk analysis central to the project’s ultimate success. Key Takeaways The core questions for BESS site selection in New York and […]
What Business Owners Get Wrong Before Meeting a Litigation Attorney
What should you expect when meeting a litigation attorney about a business dispute? You should expect to describe the dispute in your own words, hand over the most important documents, flag any deadlines or immediate threats, and leave with a clearer picture of the problem, what information is still needed, and the likely next steps. […]
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!
