Regulation A+ is an exemption to registration when issuing securities. It is essentially an abbreviated version of an initial public offering.

Regulation A+ Overview

On March 25, 2015, the Securities and Exchange Commission  (SEC) adopted a set of new provisions designed to implement Section 401 of the Jumpstart Our Business Startups or (JOBS) Act.  This was done by expanding the old Regulation A exemption into two tiers. This expanded exemption is now titled Regulation A+.

Tier 1 of Reg A+ allows for an exemption from registration for securities offerings of up to $20 million in a 12-month period; and Tier 2 allows exempt offerings of up to $50 million in a 12-month period. An issuer of $20 million or less of securities can elect to conduct either Tier 1 or Tier 2 offering.

These new provisions under Regulation A allow small companies to take advantage of the capital markets in ways never envisioned in the past.  There are now expanded marketing and soliciting provisions in place along with greatly enhanced channels to access liquidity via the public equity markets.

Issuer Constraints

Regulation A+ is only available to companies formed in and has their primary place of business in the United States or Canada. Regulation A+ is not available to:

1) Companies that already are required to make ongoing public reports and filings under section 13 or 15(d) of the Exchange Act.

2) Companies registered or required to be registered under the Investment Company Act of 1940 and Business Development Corporations BDCs;

3) Blank Check Companies or development stage companies that have no specific business plan or purpose or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.

4) Issuers of fractional undivided interests in oil or gas rights, or similar interests in other mineral rights;

5) Issuers that are already required to file ongoing financial reports and disclosures under Regulation A but have been delinquent in the required SEC filings. This rule applies during a period of no more than two years preceding the filing date of a new Regulation A securities offering.

6) Issuers that are or have been subject to an order by the SEC denying, suspending, or revoking the registration of a class of securities under Section 12(j) of the Exchange Act. This rule applies for a period of five years before the filing of the offering statement.

7) Issuers subject to “bad actor” disqualification under Rule 262

The “bad actor” disqualification provisions contained in Rule 262 of Regulation A disqualify securities offerings under Regulation A if the issuer or other contributing persons have experienced a disqualifying event, such as being convicted of, or subject to court or administrative sanctions for, securities fraud or other violations of specified laws.

Requirements Under Regulation A+

* Under the new rules allowed by the SEC, Tier 2 issuers are required to include audited financial statements in their offering documents. They must also file ongoing annual, semiannual, and current reports with the SEC.

* With the exception of securities that will be listed on a national securities exchange upon qualification, purchasers in Tier 2 offerings must either be accredited investors, as that term is defined in Rule 501(a) of Regulation D, or be subject to certain limitations on their investment.

Limitations of Unaccredited Investors

Issuers that conduct a Tier 2 offering should keep in mind Regulation A+ limits the amount of money an unaccredited investor can commit to the offering.  Under Rule 501(a) of Regulation D unaccredited investors are limited to purchasing in a Tier 2 offering no more than: (a) 10% of the greater of annual income or net worth (for natural persons); or (b) 10% of the greater of annual revenue or net assets at fiscal year end (for non-natural persons). This limit does not, however, apply to purchases of securities that will be listed on a national securities exchange upon qualification.

Special Note: There are no dollar limitations on the amount a person can invest in an offering under Tier 1 of Regulation A+.

*Additionally, in order for the conditional exemption under Regulation A+ to apply, issuers in Tier 2 offerings are required to engage the services of a transfer agent registered with the SEC as required under Section 17A of the Exchange Act.

*All issuers that conduct Regulation A + offerings must electronically file an offering statement on Form 1-A on the SEC Electronic Data Gathering, Analysis and Retrieval system (EDGAR).

*Issuers whose securities have not been previously sold under Regulation A or an effective registration statement under the Securities Act are allowed to submit to the SEC a draft offering statement for non-public review by the staff.  All non-public submissions of draft offering statements must be submitted electronically on the  EDGAR platform, and the initial non-public submission must be publicly filed and available on EDGAR for a minimum 21 calendar days before qualification of the offering statement.

*Issuers are only permitted to begin selling securities under to Regulation A+ once the SEC has qualified the offering statement. The Division of Corporation Finance has delegated authority to declare offering statements qualified by a “notice of qualification,” which is equivalent to a notice of effectiveness in normally registered offerings.

*Issuers under Tier 1 of Regulation A are required to register or qualify their securities offerings within the various states from which the issuer will be raising capital. This is done through the offices of each state’s securities regulatory arm.

*Issuers under Regulation A Tier 2 on the other hand, are not required to register or qualify their offerings with local state  regulatory arms. Nevertheless there still may be fees involved from state to state when conducting a Tier 2 offerings just the same.

Marketing & Testing the Waters

Issuers are permitted to “test the waters” with, or solicit interest in a potential offering from, the general public either before or after the filing of the form 1-A offering statement.  The prerequisite is that all solicitation materials include the legends that would required by the final rules. Moreover the potential investor must receive the preliminary offering circular before or at the time of solicitation or they must receive a notice informing them where and how the most current preliminary offering circular can be obtained.


Liquidity Under Regulation A+

*Issuers may elect to conduct a Regulation A+ offering under Tier 1 or Tier 2.

Tier 1 allows for offerings of up to $20 million in a 12-month period.  Up to $6 million or 30% of the offering proceeds can be raised on behalf of selling security holders that are affiliates of the issuer.

Tier 2 allows for offerings of up to $50 million in a 12-month period.  Up to $15 million or 30% of the offering proceeds can be raised on behalf of selling security holders that are affiliates of the issuer.

*Moreover there is no trading restriction period set forth for securities issued under the Regulation A+ exemption.

Please know we at Vantage Advisors capital Division stand ready to aid, assist, and advise our clients on any an all aspects of the Regulation A+ exemption offering process.