Regulation A+ For Publicly Traded Reporting Companies

Benefits of Regulation A+ Amendments

On December 19, 2018, the Securities and Exchange Commission (the “SEC”) adopted amendments to Regulation A informally referred to as Regulation A+. The amendment allows companies that are subject to SEC reporting requirements under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), to conduct securities offerings using Regulation A+. The amendments to Regulation A were mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act, which became law in May 2018.

As discussed in more detail below, the amendments offer benefits to smaller reporting companies not listed on the New York Stock Exchange (“NYSE”) or NASDAQ and companies subject to SEC reporting requirements that do not qualify to, use Form S-3 or F-3 shelf registration statements.

The amendments will become effective immediately upon publication of the adopting release in the Federal Register.

Summary of Regulation A+

Regulation A+ provides an exemption from the SEC’s registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), for offers and sales of securities up to $20 million, for Tier 1 offerings, or up to $50 million, for Tier 2 offerings, in a twelve-month period. Prior to the newly adopted amendments, Regulation A+ was not available to companies subject to SEC reporting requirements.

Summary of the Amendment

The amendment revised Rule 251 of Regulation A to delete Rule 251(b)(2) and allows companies subject to the SEC’s reporting obligations to use Regulation A.  As a result of the amendment, Item 2 of Part I of Form 1-A, which lists the issuer eligibility criteria to use the form was modified. The amendment also modifies Rule 257(b) of Regulation A, with respect to Regulation A Tier 2 offerings, so that a Securities Exchange Act reporting company that will comply with its SEC periodic and current reporting requirements under Rule 257 if it meets the reporting requirements of Section 13 of the Securities Exchange Act.

Cost Benefits

Since SEC reporting companies are subject to the reporting requirements of the Securities Exchange Act, the relative total cost of conducting a Regulation A offering will likely be lower for a reporting company than those issuers not subject to the Securities Exchange Act.

State Blue Sky

SEC reporting companies that are not listed on a national securities exchange like the NYSE or NASDAQ will benefit from the amendment because blue sky preemption is available for Tier 2 Regulation A offerings, but blue sky preemption is generally not available for SEC registered offerings by companies not listed on a national securities exchanges.

Alternative to Form F-3 or S-3 for SEC Reporting Companies

In addition, reporting companies that are not eligible to conduct shelf offerings on Form S-3 or F-3 may consider a Regulation A offering as an alternative to a traditional SEC registered offering even though Regulation A cannot be used to conduct an “at-the-market” securities offering. Issuers that previously conducted a Regulation A+ offering and listed on a stock exchange in connection with that offering may continue using Regulation A.

Testing the Waters

Among the benefits of Regulation A+ offerings is the ability to conduct test-the-waters type activity with all types of investors, including retail investors. Further, Regulation A can offer state blue sky law benefits to companies that do not qualify for blue sky law preemption for their SEC registered public offerings because they are not listed on the NYSE or NASDAQ. In addition, unlike registered offerings, Regulation A+ offerings are not subject to Section 11 liability under the Securities Act.

SEC reporting companies should consider a Regulation A offering as an option in light of the benefits of the new amendment.

This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the Frankfurt Stock Exchange, London Stock Exchange, NASDAQ Stock Market, the NYSE MKT and OTC Markets. For two decades the Firm has served private and public companies and other market participants in SEC reporting requirements, corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation A/ Regulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, Form F-1, Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-Q, Form 10-K and Form 8-K, Form 6-K and SEC Schedule 14C Information and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11 / Form 211 trading applications, corporate name changes, reverse and forward splits, changes of domicile and other transactions. The firm represents clients in London, Dubai, India, Germany, India, France, Israel, Canada and throughout the U.S.