On June 19, new rules by the Securities and Exchange Commission that update and expand Regulation A went into effect. The updated exemption, commonly known as “Regulation A+,” enables smaller companies to offer and sell up to $50 million of securities in a 12 month period, subject to eligibility, disclosure and reporting requirements.

On Tuesday, the SEC’s Division of Corporation Finance addressed some initial questions about the changes with 11 new Compliance and Disclosure Interpretations (182.01 through 182.11).

The new Regulation A provides 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.

The CD&Is address such matters as sharing non-public information with SEC staff, the use of social media (in particular the limited character counts of Twitter) for “testing the waters” communications, what a “principal place of business” is for purposes of the rules, and how recently created entities should report financial information.

A sampling from the CD&Is:

Would a company with headquarters located within the United States or Canada, but whose business primarily involves managing operations that are located outside those countries, be considered to have its “principal place of business” within those countries for purposes of determining issuer eligibility under Regulation A?

Yes, an issuer would be considered to have its “principal place of business” in the U.S. or Canada for purposes of determining issuer eligibility.

If an issuer elects to submit a draft offering statement for non-public staff review before public filing and, as part of that process, submits correspondence relating to its offering statement, what must it do if it wants to protect portions of that correspondence from public release?

During the review of the draft offering statement, the issuer would request confidential treatment of any information in the related correspondence in the same manner it would during a typical review of a registered offering. It would submit a redacted copy of the correspondence via EDGAR, with the appropriate legend indicating that it was being submitted pursuant to a confidential treatment request under Rule 83. At the same time, it would submit an un-redacted paper version to the SEC, in the manner required by that rule.

When the issuer makes its public filing of the offering statement, it will be required to file as an exhibit to the electronically filed offering statement any previously submitted non-public correspondence related to the non-public review. Since that correspondence will be information required to be filed with the SEC, the issuer must redact the confidential information from the filed exhibit, include the required legends and redaction markings, and submit in paper format to the SEC’s Office of the Secretary an application for confidential treatment of the redacted information under Rule 406. The staff will consider and act on that application.

Is a private wholly-owned subsidiary of an Exchange Act reporting company parent eligible to sell securities pursuant to Regulation A?

Yes, although the parent could not be a guarantor or co-issuer of the securities of the private wholly-owned subsidiary.

Can Regulation A be relied upon by an issuer for business combination transactions, such as a merger or acquisition?

Yes. The final rules do not limit the availability of Regulation A for business combination transactions, but, as the Commission indicated, Regulation A would not be available for business acquisition shelf transactions, which are typically conducted on a delayed basis.

May a recently created entity choose to provide a balance sheet as of its inception date?

Yes, as long as the inception date is within nine months before the date of filing or qualification and the date of filing or qualification is not more than three months after the entity reached its first annual balance sheet date. The date of the most recent balance sheet determines which fiscal years, or period since existence for recently created entities, the statements of comprehensive income, cash flows and changes in stockholders’ equity must cover. When the balance sheet is dated as of inception the statements of comprehensive income, cash flows and changes in stockholders’ equity will not be applicable.

Can an issuer solicit interest and “test the waters” in a Regulation A offering on a platform that limits the number of characters or amount of text that can be included, thereby preventing the inclusion in such communication of the information required by Rule 255?

Yes. The staff will not object if the communication contains an active hyperlink to the required statements that otherwise satisfy Rule 255 and, where possible, prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.