Regulation A+ Q & A – Regulation A+ Lawyers
Regulation A+ Lawyers Explain Regulation A+ With Q&A Series
Regulation A+ expands existing Regulation A. Existing Regulation A provides an existing exemption from registration for smaller issuers of securities. Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction allowing the issuer to avoid the risks of reverse merger transactions. Regulation A+ simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital.
We created this Securities Lawyer 101 Series to address the most common questions we receive about Regulation A+.
Is Regulation A+ Equity Crowdfunding?
An experienced Regulation A+ lawyer will tell you that Regulation A+ is not the same as equity crowdfunding. Regulation A+ became effective on June 19, 2015 while equity crowdfunding is not yet legal.
Can All Companies Use Regulation A+?
No. Regulation A+ offerings can only be conducted by companies that are domiciled in and have their principal place of business in the United States or Canada. As such, foreign issuers may not conduct Regulation A+ offerings and must locate an alternative exemption for their unregistered offering.
What Securities Can Be Registered On Form 1-A Under Regulation A+?
Regulation A+ is limited to shares, warrants and convertible equity securities.
How Much Can I Raise With Regulation A+?
Tier 1, is available for offerings of securities of up to $20 million in a 12- month period, with no more than $6 million in offers by selling security- holders that are affiliates of the issuer. Tier 2 is available, for offerings of securities of up to $50 million in a 12-month period, with no more than $15 million in offers by selling security-holders that are affiliates of the issuer.
Can The Company’s Existing Shareholders Register Shares In A Regulation A+ Offering?
Yes. For a Tier 1 offering, secondary sales are limited to $6 million in a 12- month period. For Tier 2 offerings, secondary sales are limited to $15 million in a 12-month period. Additionally, secondary sales at the time of an issuer’s first Regulation A offering and within 12 months thereafter cannot exceed 30 percent of the aggregate offering price of that particular offering and for affiliates only, the $6 million and $15 million annual limitations on secondary sales continue indefinitely.
Who Can Invest In A Regulation A+ Offering?
Both accredited and non-accredited investors can participate in Regulation A+ offerings. In a Tier 2 Offering, if the issuer does not become listed on a national exchange, non-accredited investors may invest the greater of 10% of their income or net worth (exclusive of principal residence), whichever is greater.
If a company lists on a national exchange immediately upon commencement of its offering, there are no limitations on how much may be invested by non-accredited investors in the offering.
There is no cap on the amounts an accredited investor may invest in either Tier 1 or Tier 2.
Are Regulation A+ Shares Restricted Securities?
Resales by affiliates (other than registered resales or secondary sales under Regulation A+) are subject to the limitations of Rule 144, other than the holding period requirement.
Do I Have To File Reports With The SEC After My Regulation A+ Offering Is Approved?
Yes. You must file reports specifically designed for Regulation A+. Issuers conducting Regulation A, Tier 1 offerings must file a Form 1-Z within 30 days after the offering is completed or terminated. Form 1-A requires information about the amount of securities qualified and sold, as well as the price, fees, and net proceeds.
Issuers conducting Regulation A, Tier 2 offering must report the same information on Form 1-Z or, depending on when the offering is terminated, in their annual report on Form 1-K. Issuers in Regulation A, Tier 2 offerings become subject to ongoing SEC reporting obligations.
Form 1-A Offering Statement?
The Regulation A+ Form 1–A offering statement has three parts: Part I, which requires basic issuer information such as the details about the security being offered, the jurisdictions where the securities will be offered, and recent sales of unregistered securities. Part II, requires the business, management, financial statement, and other substantive disclosures. Part III, contains exhibits and related documents.
Are Regulation A+ Filings Submitted On EDGAR?
Yes. All Regulation A+ filings must be made through the SEC’s electronic filings system, known as EDGAR.
What SEC Periodic Reporting Obligations Imposed Apply To Tier 2 Issuers?
These include: (i) that the securities of each class covered by the Form 1- A offering statement be held of record by less than 300 persons (1,200 persons for banks and bank holding companies), (ii) offers and sales under the Form 1-A offering statement are not ongoing, and (iii) the issuer has complied with its ongoing reporting obligations.
What Are The Ongoing Reporting Obligations For Tier 2 Issuers?
Regulation A+ ongoing requirements for Tier 2 issuers include: (i) annual reports on new Form 1-K, which will include the same information required in a Form 1-A, and Regulation A offering circular other than the offering-specific information; (ii) semiannual reports on new Form 1-SA which includes financial statements and an MD&A; (iii) current information reports on the new Form 1-U which reports “fundamental changes,” and other specific events including bankruptcy or receivership, non-reliance on previously issued financial statements, audit report or interim review, changes in control, departure of certain executive officers and unregistered sales of 10% or more of outstanding equity securities; and (iv) depending on the financial statements included in the Form 1-A and the timing until the next annual or semiannual report, financial reports on new Forms 1-K and 1-SA are required for periods where there are gaps in the financial information.
Do My Financial Statements Have To Be Audited?
For Tier 1 Regulation A+ offerings, no audit is required. For Tier 2 offerings, Audited Annual Financial Statements must be provided by the Company’s independent auditor. Note the auditor does not have to registered with the Public Company Accounting Oversight Board.
What Periods Are Required To Be Audited?
Financial statements must be dated not more than nine months before the date of Regulation A+ filing or qualification, with the most recent annual or interim balance sheet not older than nine months. If interim financial statements are required, they must cover a period of at least six months.
Can A Tier 2 Issuer Become A Reporting Company Under The Exchange Act By Filing A Registration Statement On Form 8-A Instead Of Form 10?
Can A Company Suspend Its Regulation A+ Reporting Requirements?
Yes. A company can suspend its ongoing reporting obligations after the fiscal year in which its Form 1-A offering statement is qualified if it has filed an annual report for that fiscal year using Form 1-Z.
Are Issuers In Tier 2 Offerings Exempt From Section 12(g) Reporting?
Securities issued in a Tier 2 offering are exempt from the Exchange Act registration requirements of Section 12(g) if and for so long as the issuer remains subject to, and is current in (as of its fiscal year end) its Regulation A periodic reporting obligations, provided the following additional conditions are also met:
- the issuer has engaged a transfer agent that is appropriately registered with the SEC; and
- the issuer has a public float of less than $75 million (or, in the absence of a public float, annual revenues of less than $50 million) (similar to the “smaller reporting company” qualifications).
Do I Have To Register My Regulation A+ Offering With State Regulators?
Regulation A+ also provides for the preemption of state securities law registration statement requirements and qualification requirements for securities offered or sold to “qualified purchasers” in Tier 2 offerings. Tier 1 offerings will be subject to federal and state registration and qualification requirements, and issuers may take advantage of the coordinated review program of the North American Securities Administrators Association (NASAA). Companies should remember that states retain authority to:
- require the filing of any documents filed with the SEC “for notice purposes and payment of fees”;
- enforce filing and fee requirements by suspending offerings within a given state; and
- investigate and bring enforcement actions with respect to fraudulent securities offerings.
Does The Integration Rule Apply To Regulation A+ Offerings?
- registered pursuant to Securities Act, unless the abandoned Regulation A offering provisions are applicable conducted pursuant to Rule 701;
- conducted pursuant to employee benefit plans;
- conducted pursuant to Regulation S;
- conducted pursuant to Regulation Crowdfunding; or
- conducted more than six months after the completion of the Regulation A offering.
Are Bad Actors Banned From Regulation A+ Offerings?
Yes. Regulation A+ includes bad actor disqualification provisions as adopted under Rule 506(d) of Regulation D. Regulation A+ added two additional disqualification triggers. These are Securities & Exchange Commission cease-and-desist orders for violations of scienter-based anti-fraud provisions of the federal securities laws or the registration provisions of Section 5 of the Securities Act and the final orders and bars of certain state and other federal regulators. Regulation A+ lawyer
What Are The Advantages Of Regulation A+?
Regulation A+ Offers Numerous Benefits. Among Them Are:
- Because securities sold in Regulation A+ offerings are unrestricted, investors and shareholders have an exist strategy.
- Issuers can voluntarily become a full SEC reporting company by using Form 8-A and list on a national securities exchange upon closing of the offering.
- Regulation A+ allows both accredited and non-accredited investors to participate creating a large investor pool.
- State Blue Sky Laws are pre-empted in Tier 2 offerings.
- Regulation A+ offers two tiers of offerings providing flexibility to investors.
- Tier 1 offerings do not require audited financial statements.
- Disclosure requirements are scaled down from those required in an SEC registration statement.
For further information about this securities law Q & A or to speak with a Regulation A+ lawyer, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, Florida, (561) 416-8956, or [email protected]101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Regulation A+ Lawyers
Brenda Hamilton, Going Public Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855