CHAPTER 6 Regulation A+
exemptions from registration that may be available to issuers. Section 3(b) of the Securities Act authorises the SEC to adopt rules and regulations exempting securities from registration if the SEC finds that registration “is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering…” One of the exemptions that the SEC adopted pursuant to section 3(b) of the Securities Act is Regulation A.1
A Pursuant to
Regulation A, issuers that are not SEC-reporting companies may raise up to $5 million through sales of their securities in interstate offerings without complying with the registration requirements of the Securities Act.2
Regulation
A also provides controlling stockholders, as well as non- affiliates, an opportunity to sell their unregistered securities. A Regulation A offering is not a private offering. In fact, it is often referred to as a mini-registration. Regulation A incorporates a number of conditions that in certain respects resemble the registration requirements of section 5 of the Securities Act. For example, in order for an issuer to avail itself of the Regulation A exemption, it must: • prepare and file with the SEC an offering statement for the SEC’s review and approval;
• deliver the offering statement to prospective investors; and
• file periodic reports of sales after completion of the offering. The requirements for the offering statement are not as
onerous as those applicable to a section 10 prospectus, and the issuer is not subject to section 11 liability in respect of the offering statement. Due to the low offering threshold, and without a
corresponding state blue sky exemption for securities offered in Regulation A offerings, Regulation A has not provided a viable capital-raising vehicle for smaller companies in recent years, and Rule 506, which has no offering threshold, has become the most commonly used exemption from registration.
s we discuss in Chapter 4, most issuers rely on exemptions from registration adopted pursuant to section 4 of the Securities Act to raise capital. There are, however, a number of other
Regulation A reform has been considered at various
times in recent years, but it was not until 2011 and 2012 that legislative efforts to amend the exemption took shape. As discussed below, these legislative proposals, if passed, would have raised the offering threshold and modernised existing Regulation A. Ultimately, however, many of these concepts were incorporated into Title IV of the JOBS Act, titled Small Company Capital Formation. Title IV of the JOBS Act amends section 3(b) of the Securities Act, increasing the dollar threshold for a Regulation A-style offering, but does not actually amend existing Regulation A. Below we provide an overview of current Regulation A as it is likely that this existing framework will be incorporated into the new section 3(b)(2) offering exemption.
Regulation A Regulation A was enacted during the Great Depression to promote capital formation for small businesses. One of the SEC’s primary purposes in adopting Regulation A was to provide a simple and efficient process by which small businesses could raise limited amounts of capital, while ensuring that investors had access to current information. When originally enacted, section 3(b) authorised the SEC to exempt only “small” issues involving offerings of $100,000 or less. Over time, this dollar threshold was adjusted. In 1980, the small issue exemption was increased by Congress to $5 million.3
increase the threshold until 1992, however.4 US economic downturn5
The SEC did not actually In 1992, the
for the SEC to modernise Regulation A in order to promote small business capital formation.6
provided the necessary backdrop Reinvigorating
small business was linked to creating job opportunities and spurring economic growth.7
adopted a number of small business-related initiatives that included significant amendments to Regulation A.8
In July 1992, the SEC These
changes were intended to facilitate “access to the public market for start-up and developing companies and … [to reduce] the costs for small businesses to undertake to have their securities traded in the public markets.”9
The
amendments increased the threshold amount to $5 million in any 12-month period, including no more than $1.5
JOBS Act Quick Start 49
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