A Beginner's Guide to the New SEC Reg A Rules

Dennis McCarthy  |

SEC Issues Final Reg A Offering Rules

The SEC released its long awaited Final Rules designed to make Reg A offerings a practically useful means for private companies to raise capital.

Reg A defines the conditions under which a private company can raise capital in a public offering exempt from the SEC’s full registration requirements. 

Shares purchased pursuant to Reg A, therefore, are freely tradable post-offering, that is, for securities regulation purposes. Salability of the shares, however, is still practically limited by the liquidity of the market for the shares. 

One of the more attractive features of a Reg A offering is that a company can sell to either non-accredited or accredited investors. This is a major difference from the restrictions imposed on companies using the 506 exemption for private offerings.

Under the JOBS Act, the SEC was instructed to update the Reg A rules, now known as Reg A+ rules, which had fallen into disuse. This was described in an earlier article.

Reg A+ Offerings

Companies that plan to offer securities under the new Reg A+, must submit an offering statement to the SEC for review*.

The Reg A+ offering statement, however, is far simpler than that required for a registered public offering**. It will require, however, two years of financial statements including balance sheets, income, cash flow and equity statements if the company has been in existence that long.

One of the major changes under Reg A+ is the creation of two tiers of offerings, Tier 1 and Tier 2.

Tier 1 of Reg A+ Offerings

Tier 1 permits a company to offer up to $20 million within a 12-month period. 

Tier 1 issuers have essentially no ongoing post-offering disclosure requirements other than reporting on securities sold in the offering***.

Tier 1 offerings, however, still require state securities regulator review of the offering but under a coordinated review process designed to reduce the state “blue sky” review burden.

Tier 2 of Reg A+ Offerings

Tier 2, in contrast, permits a company to offer up to $50 million within a 12-month period. 

Importantly, a Tier 2 offering avoids state securities regulation entirely.

The burden of doing a Tier 2 offering are:

(i) After a Tier 2 offering, a company is required to file post-offering reports with the SEC including annual and semi-annual financial statements as well as reports on other material events.***

(ii) A Tier 2 offering triggers the requirement that the annual financial statements in both the offering statement and subsequent annual filings be audited.

Each of Tier 1 and Tier 2 offerings have other limitations, including limitations on secondary or shareholder sales, which are explained in the SEC’s press release (click here) and Final Rules.


    *Final Rules Pg. 142.      

   **Final Rules Pg. 118

 ***Final Rules Pg. 160

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