million in non-issuer resales. Also, the amendments permitted issuers to use a simplified disclosure document and to test the waters before preparing the mandated offering circular. The SEC also extended the safe harbour provisions for forward-looking statements to statements made in a Regulation A offering circular or any written material submitted to the SEC. Finally, the SEC clarified that an issuer would not be precluded from relying on the exemption if it had endeavoured in good faith to comply with the terms, conditions, and requirements of Regulation A.
Regulation A requirements The availability of Regulation A is conditioned upon meeting certain substantive and procedural requirements.10 The principal requirement relates to the dollar size of the offering. If that requirement is met, the issuer must file the appropriate forms with the SEC. Failure to comply with either the dollar limit or the filing requirements results in the loss of the exemption and a violation of section 5 under the Securities Act.
Eligible issuers The Regulation A exemption is available for any US or Canadian entity that has its principal place of business in the United States or Canada11
reporting obligations under section 13 or section 15(d) of the Exchange Act immediately before the offering.12
and is not subject to The
following issuers are ineligible to offer or sell securities under Regulation A: (i) any issuer that is a development stage company that
either has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies;13 (ii) any investment company registered or required to be
registered under the Investment Company Act of 1940;14 and
(iii) any entity issuing fractional undivided interests in
oil or gas rights, or similar interest in other mineral rights.15 Rule 262 of Regulation A also contains certain bad actor
provisions, identifying specific types of improper conduct undertaken by an issuer or certain affiliated parties that will disqualify the issuer from being able to avail itself of Regulation A.16
Offerings Regulation A may be used by an issuer to conduct a primary offering of its securities with the proceeds to be used by the issuer, as well as to conduct a secondary offering of securities on behalf of selling security holders.17 There are a few limitations built into Rule 251(b) as it
50 JOBS Act Quick Start
relates to secondary offerings of securities on behalf of selling security holders. First, no affiliate resales are permitted if the issuer has not had net income from continuing operations in at least one of its last two fiscal years. Second, Rule 251(b) maximises the offering amount to $1.5 million offered by all selling security holders. Continuous or delayed offerings may be made pursuant to Regulation A if permitted by Rule 415.18
An offering
circular for a continuous offering must be updated to include, among other things, updated financial statements, 12 months after the date the offering statement was qualified.19
Integration of offerings Rule 251 of Regulation A provides for certain integration safe harbors. Rule 251(c) provides that offers or sales made in reliance on Regulation A will not be integrated with: (i) prior offers or sales of securities; or (ii) subsequent offers or sales of securities that are: (a) registered under the Securities Act, except as provided in Rule 254(d),
(b) made in reliance on Rule 701, (c) made pursuant to an employee benefit plan, (d) made in reliance on Regulation S, or (e) made more than six months after the completion of the Regulation A offering.
Rule 251(c)(1) provides certainty from integration with
respect to any offers or sales of securities. For example, an issuer could make a private offering under section4(a)(2) or Regulation D before commencing a Regulation A offering without risking integration of the private offering with the Regulation A offering. For offerings made subsequent to the Regulation A offering, the Rule 251(c)(2) safe harbour period begins at the latest “six months after completion of the Regulation A offering;”20 however, depending on how the offering is structured, as enumerated by Rule 251(c)(2)(i)–(iv), it may begin immediately subsequent to completion of the Regulation A offering. In addition, a note to Rule 251(c) provides that, if the integration safe harbour is unavailable, offers and sales still may not be integrated with a Regulation A offering, subject to the particular facts and circumstances. An issuer and its adviser may consider the traditional SEC five-factor integration test in analysing the offerings.
Offering disclosures An issuer who seeks to rely on Regulation A must still file and qualify an offering statement.21
The offering statement
is intended to be a disclosure document that provides potential investors with information that will form the basis for their investment decision. In addition, in July
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