NEW YORK, Sept. 6, 2018 /PRNewswire/ -- Companies that have issued public securities and are required to report to the SEC got some good news in May 2018 when President Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act. The goal of this bill was to tone down some of the restrictions imposed on banks within the Dodd-Frank Act—but it went even further than that. Deep within its content is wording ensuring that the use of Regulation A+ can be extended further, this time to companies that report to the Securities and Exchange Commission (SEC). Before the signing in May, SEC-reporting companies with public equity were exempted from participation in Regulation A+.
The Regulation A+ offering rules allow non-publicly traded, private companies to raise up to $50 million from investors in the general public with far easier reporting standards than those of public companies. Initially, companies that were subject to reporting requirements under Section 13 or under Section 15(d) of the Securities Exchange Act of 1934 were not eligible to raise capital under Regulation A. The reason for this was that the SEC wanted to ensure that Regulation A was used most often by small and new companies rather than those large, established and profitable enough to have already registered securities. With the bill signed by President Trump, however, the SEC must now eliminate this limitation on the use of Regulation A+.
In addition, the SEC is to amend the Regulation A+ rules so that SEC-reporting security issuers will have met the Regulation A+ periodic and current reporting requirements as long as they are in compliance with the reporting requirements of Section 13 of the SEC Act. Thanks to this caveat, SEC-reporting companies with a Tier 2 offering under Regulation A+ will only need to file Regulation A+ required reports and not those of the SEC Act.
Regulation A+ Advantages for SEC-Reporting Companies
Regulation A+ offers some distinct advantages for both private companies and investors, such as:
- Regulation A+ securities are not restricted, and can, therefore, be resold.
- Investors do not need to be accredited in order to buy shares offered under Regulation A+.
- Companies using Regulation A+ have no requirement to register or qualify offerings through individual state securities regulators.
- Companies raising money under Regulation A+ are not subject to the same rules and restrictions as those with IPOs or private placements.
- Regulation A+ offers companies simpler reporting requirements and are exempt from the solicitation restrictions of Regulation D.
- Companies who qualify to use the already simplified Form S-3 can continue using that form.
- Raising money through Tier 1 or Tier 2 of Regulation A+ offers lower-cost capital raising options.
Potential Future Directions of Regulation A+
This change may be just the start of what's to come under the revised Regulation A+. One particular area of interest is in private investment in public equity offerings (PIPE). There is a distinct possibility that discounted shares of public equity through PIPE offerings could be replaced by the use of Regulation A as a means to raise capital quickly. Doing so may lift some of the filing requirements of PIPE offerings, including the registration statement and post-sale registration statement filings. In addition, sale through Regulation A would mean that the PIPE offering shares would be immediately tradable. By removing the resale restriction, companies could price the PIPE offering higher, allowing them to raise more capital.
Regulation A is a game changer for both companies and investors. It levels the playing field in several ways, including by increasing the opportunity for healthy business competition. This regulation has the potential to change the face of investing and capital raising in a variety of ways we have yet to see.
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