The House of Representatives, on Sept. 6, approved legislation that intends to expand the Securities and Exchange Commission’s registration exemption under Regulation A+.
In March 2015, the SEC adopted new rules that update and expand Regulation A, an existing exemption from registration for smaller issuers of securities. The updated exemption will enable smaller companies to offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure and reporting requirements.
The final rules, often referred to as Regulation A+, provide for two tiers of offerings: Tier 1, for offerings of securities 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; and Tier 2, for offerings of securities 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.
Both tiers are subject to certain basic requirements; Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.
A controversial element of the final rule is its preemption of state securities law registration 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 developed by the North American Securities Administrators Association.
The SEC’s changes at the time were in response to the 2012 passage of the JOBS Act. It was, in part, an effort to expand crowdfunding offerings and other deals seeking to raise up to $50 million.
The latest potential change to the exemption comes from a bill, the Improving Access to Capital Act (HR 2864). Sponsored by Rep. Kyrsten Sinema, a Democrat representing Arizona, it passed in the House earlier this month. It would expand the offerings beyond new and non-reporting issuers. The effort is intended to boost the use of the exemption to a broader range of companies.
The move is in keeping with the goal of lowering the cost of capital formation and expanding opportunities espoused by many serving in the Trump Administration, notably SEC Chair Jay Clayton.