I’ve done my share of griping about the SEC, but credit needs to be given where credit is due. And credit is due to the SEC for adopting a new, improved version of Regulation A that has become known as “Reg A+”. (OK, we can gripe about how long it took the SEC to adopt the final rule, but let’s be gracious and remember that justice delayed isn’t necessarily justice denied.)
Reg A has been around forever, but has been used very infrequently. Like many other long-time SEC practitioners, I’ve never done a Reg A deal. There are many reasons for this, but the big one is that Reg A limited the maximum amount of an offering to $5 million – hardly enough to justify the costs involved (which included compliance with Blue Sky laws). Then Reg D came along, as well as the amendment of Rule 144 reducing the amount of time that an investor had to hold “restricted securities,” and the rest is history.
The JOBS Act called for the SEC to review and update Reg A, and they’ve done an A+ job – all puns intended. Here are some key provisions of Reg A+
- Companies can now raise up to $50 million of capital every 12 months
- Securities issued in a Reg A+ deal will not be “restricted securities.” In other words, investors will have immediate liquidity in the securities purchased.
- Reg A+ offerings of more than $20 million will not be subject to Blue Sky laws requiring pre-offering review. (However, they will be subject to Blue Sky filing and anti-fraud provisions.)
- Companies can obtain an exchange listing without the need for a costly and time-consuming Form 10 registration statement.
- While a company that offers more than $20 million of securities under Reg A+ will be subject to Exchange Act reporting obligations upon completion of the offering, the reports in question will be less frequent and more streamlined than under a conventional offering.
- Reg A+ does not require that investors be accredited (though there are some limitations on the amount a non-accredited investor can purchase).
- Companies can test the market before doing a Reg A+ deal.
- Reg A+ filings can initially be made on a confidential basis.
Of course, the above is a simplified version of what’s involved; there are conditions and exemptions and integration issues, etc. You’ll be able to learn about the details in a forthcoming Securities Edge posting.
However, all things considered, Reg A+ appears to us to have been well done. We believe that it may be very helpful to many companies that want to raise capital but for which a conventional public offering does not make sense. However, it will simplify the path toward a conventional offering and will give a company time to get accustomed to periodic reporting without having to deal with the rigors of full-fledged Exchange Act reporting. For similar reasons, Reg A+ should be of interest to private equity or venture capital investors in connection with their portfolio companies.
Please contact me or one of my colleagues in Gunster’s Securities and Corporate Governance Practice Group if you’d like to know more about Reg A+.