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Reg A+ for Everyone! New Financing Option for Unlisted Issuers

As mandated by the 2018 Economic Growth, Regulatory Relief and Consumer Protection Act, the Securities and Exchange Commission has amended rules under Securities Act Regulation A to permit reporting companies to sell equity securities under the regulation. Previously, Regulation A was available only to companies not subject to Exchange Act reporting requirements. (Regulation A is popularly referred to as Reg A+, reflecting earlier amendments under the 2012 Jumpstart Our Business Startups Act that substantially increased amounts that can be raised under the regulation.) The change will become effective March 2, 2019. 

As before, sales of equity securities under Regulation A must be made pursuant to an offering circular contained in an offering statement qualified by the SEC. The offering statement contents differ depending on whether used in Tier 1 offerings (up to $20 million in 12 months) or Tier 2 offerings (up to $50 million in 12 months). In particular, Tier 1 offerings require audited financial statements only if the issuer already has obtained them for other purposes; whereas, Tier 2 offerings require financial statements that comply with rules applicable to smaller reporting companies. In either case, only two years of financial statements are required. 

In guidance, the SEC stated that it is not amending financial the statement requirements to take account of reporting companies that sell under Regulation A. Neither did the SEC state whether it considers audited financial statements obtained by a reporting company for reporting purposes to be “obtained for other purposes” for purposes of Regulation A. The guidance does say, however, that if, at the time a reporting company files an offering statement, it has published financial statements pursuant to Exchange Act requirements, the company should consider whether those financial statements, insofar as they exceed Regulation A requirements (e.g., Exchange Act reporting is quarterly, as opposed to Regulation A semi-annual reporting), must be included to prevent the statements in the offering statement  from being misleading. Also, latitude available to a private company regarding the adoption of new accounting standards will not be available to a reporting company.

Similar to registration requirements, Regulation A requires submission of periodic reports after an offering statement has qualified. Under the amended rules, these obligations are considered satisfied by a reporting issuer, as of the related annual or semiannual report due date, as long as it has been current in its Exchange Act reports during the preceding 12 months.

As the SEC noted, the amendments will likely have the most impact on issuers in offerings of securities that fall within Regulation A offering limits and that are not listed on a national securities exchange, as Tier 2 securities offerings qualify for blue-sky pre-emption, which is generally not available for non-exchange-listed securities sold in registered offerings. The new eligibility may also be useful for smaller companies seeking quick market access but that have exhausted the capacity available to them on a so-called “baby shelf” registration statement, in light of the protection against integration available to Regulation A offerings.