The Securities and Exchange Commission has adopted final rules to allow reporting companies to use the Regulation A exemption from registration for their securities offerings.
Regulation A provides an exemption from registration under the Securities Act of 1933 for offerings of securities up to $50 million in a 12-month period. Currently, Regulation A is not available to companies that are Exchange Act reporting companies. The final rules, announced on Dec. 19, also revise Securities Act rules so that companies meeting the reporting requirements of the Exchange Act will be deemed to have also met the reporting requirements of Regulation A.
The Economic Growth, Regulatory Relief, and Consumer Protection Act, enacted earlier this year, required the Commission to revise Regulation A to allow reporting companies to use the exemption. EGRPRA requires the federal regulators to conduct a review of our rules at least every ten years to identify outdated or unnecessary regulations. That review process has now turned to regulations contained in the Dodd-Frank Act and the recently promulgated domestic capital and liquidity rules.
“The amended rules will provide reporting companies additional flexibility when raising capital,” SEC Chairman Jay Clayton said in a statement. The amendments to Regulation A will become effective upon publication in the Federal Register.
Both the Commission and Congress have championed efforts to increase use of the Regulation A exemption.
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 that previous 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.