The Securities and Exchange Commission recently adopted final rules that will allow reporting companies to utilize the Regulation A exemption from registration, a change that will provide those companies with additional flexibility when raising capital.
Regulation A Amendments
Regulation A provides an exemption from registration under the Securities Act for offerings of securities. The regulation provides for two different tiers of offerings: Tier 1 consists of offerings of securities of up to $20M in a 12-month period; Tier 2 consists of offerings up to $50M.
Under the current rules, Regulation A is not available to companies that are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.
Companies subject to Section 13 or 15(d) of the Exchange Act are what are known as reporting companies. This includes any company which lists securities on a national securities exchange, such as NYSE and Nasdaq, or that has total assets exceeding $10 million and has either 2,000 holders of record of its equity securities, or 500 persons who are not accredited investors.
On December 19, the SEC published final rules that will amend Regulation A to allow reporting companies to use the exemption provided by Regulation A.
In addition, the rules allow these companies to meet the reporting requirements of Regulation A through their Exchange Act reports. The amendments use a 12-month lookback period, consistent with the standard applied in SEC rules in other contexts.
The changes, which will become effective upon publication in the Federal Register, are required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The Growth Act was signed by President Trump last year.
The changes open the door for reporting companies to benefit from the advantages of Regulation A, which can be an easier and less costly way to raise capital. According to the SEC, there were more than 580 reporting companies with registered securities offerings of up to $50 million during 2017 that may be eligible for Regulation A under the amendments.