On March 25, the Securities and Exchange Commission adopted final rules that will expand the exemption from registration under the Securities Act of 1933 provided by Regulation A to include an exemption for up to $50 million of securities sold during a 12-month period in accordance with the new rules. This new exemption, which is often referred to as Regulation A+, implements Section 401 of The Jumpstart Our Business Startups Act (JOBS Act) (adding Section 3(b)(2) of the Securities Act), which required the SEC to adopt rules that would have the effect of updating and expanding Regulation A. The final rules address a number of comments received by the SEC in response to its December 2013 proposal, which was discussed in a prior edition of Corporate and Financial Weekly Digest.
The SEC’s final rules create two “tiers” of Regulation A offerings: (1) offerings of up to $20 million of securities, including no more than $6 million of securities offered by selling security holders, in any 12-month period (Tier 1); and (2) offerings of up to $50 million of securities, including no more than $15 million of securities offered by selling security holders, in any 12-month period (Tier 2). Sales by selling stockholders will be subject to additional limitations in an issuer’s initial Regulation A offering and any subsequently qualified Regulation A offering within the first 12-month period following the date of qualification of the initial Regulation A offering. Securities sold in either a Tier 1 or a Tier 2 offering would not be “restricted securities” for purposes of the Securities Act.
The final rules include various conditions and requirements that must be satisfied in order to rely on Regulation A (including more stringent requirements for Tier 2 offerings), as well as provisions intended to modernize the Regulation A offering process.
The final rules also provide for preemption of state securities laws in the case of Tier 2 offerings, although state securities regulators will retain, among other things, their authority to require the filing with them of any documents filed with the SEC. Tier 1 offerings, however, will remain subject to review by both state regulators and the SEC.
We intend to discuss the final rules in more detail in an upcoming publication.
To view the complete text of the final rules, click here.