Deciding Among Exempt Offering Alternatives
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In recent years, there has been a proliferation of exempt offering alternatives. In advising clients regarding which exempt offering alternative may best meet their objectives, we often suggest that they consider, among other things, the amount of capital they seek to raise, whether the ability to use general solicitation or the ability to test the waters is important to their distribution plans, which categories of investors are most likely to participate in the proposed offering, the constraints on resales of the offered securities by investors, and whether state securities registration will be required. We have organized the comparative chart to frame the answers to these questions for issuers and their financial intermediaries. None. None. None. None. $10 million within prior 12 months. No limitation other than to maintain intrastate character of offering. No limitation other than to maintain intrastate character of offering. General solicitation and general advertising permitted provided that sales are made only to residents of the state or territory in which the issuer is resident. Offers may be made to out-of-state residents. No general solicitation or general advertising. No general solicitation or general advertising unless registered in a state requiring use of a substantive disclosure document or sold under state exemption for sales to accredited investors with general solicitation. Issuer and investors must be resident in state. No limitation on number of investors. Issuer must be resident in state, using “principal place of business” and jurisdiction of organization to determine residency, and meet at least one “doing business” requirement. Investors must be resident in state, using “principal place of business” to determine residency. No limitation on number of investors. Issuer must be resident in state, using “principal place of business” to determine residency, and meet at least one “doing business” requirement. Investors must be resident in state, using “principal place of business” to determine residency. No limitation on number of investors. Investors must meet sophistication and access to information test so as not to need protection of registration. Available to non-reporting companies only if they are not investment companies or blank check companies. Certain “bad actors” are disqualified from participating in Rule 504 offerings. None. None. None. None. File Form D with SEC not later than 15 days after first sale. Filing not a condition of the exemption. Securities must rest within the state. Limits on resales to persons residing within the state or territory of the offering for 6 months. Limits on resales to persons residing within the state or territory of the offering for 6 months. Restricted securities. Restricted unless registered in a state requiring use of a substantive disclosure document or sold under state exemption for sale to accredited investors with general solicitation. Need to comply with state blue sky laws by registration or state exemption. Need to comply with state blue sky laws by registration or state exemption. Need to comply with state blue sky laws by registration or state exemption. Need to comply with state blue sky laws by registration or state exemption. Need to comply with state blue sky laws by registration or state exemption. Are there restrictions on the manner of offering? Are there resale restrictions? Is there a dollar limit? Are there filing requirements? Are there issuer and investor requirements? Are the securities exempt from blue sky? Exemption Section 3(a)(11) Rule 147 Rule 147A Section 4(a)(2) Rule 504 Regulation D Deciding Among Exempt Offering Alternatives None. None. $20 million within prior 12 months but no more than $6 million by selling security holders. $75 million within the prior 12 months but no more than $22.5 million by selling security holders. Up to $5 million in a 12-month period. When the purchaser is not an accredited investor, in a 12-month period the securities sold to such investor cannot exceed the greater of $2,200, or 5 percent of the greater of the investor’s annual income or net worth, if either the investor’s annual income or net worth is less than $107,000. Or, 10 percent of the greater of the investor’s annual income or net worth, not to exceed an amount sold of $107,000, if both the investor’s annual income and net worth are equal to or more than $107,000. No general solicitation or general advertising under Rule 506(b), except under Rule 148 which provides that certain “demo day” communications will not be deemed general solicitation under Rule 506(b). Under Rule 148, a communication is not deemed general solicitation or general advertising if such communication is made in connection with a seminar or meeting in which more than on issuer participates that is sponsored by college, university, or other institution of higher education, state or local government or instrumentality thereof, nonprofit organization, or angel investor group, incubator, or accelerator under certain conditions. General solicitation permitted provided that all purchasers are accredited investors. “Testing the waters” permitted before and after filing Form 1-A. Sales permitted after Form 1-A qualified. Under Rule 241, an issuer or any person authorized to act on behalf of an issuer may communicate orally or in writing to determine whether there is any interest in a contemplated offering of securities exempt from registration under the Securities Act. In connection with this rule and Regulation A, issuers must make generic solicitation materials publicly available as an exhibit to the offering materials filed with the SEC offering starting within 30 days of generic solicitation. “Testing the waters” permitted before and after filing Form 1-A. Sales permitted after Form 1-A qualified. Under Rule 241, an issuer or any person authorized to act on behalf of an issuer may communicate orally or in writing to determine whether there is any interest in a contemplated offering of securities exempt from registration under the Securities Act. In connection with this rule and Regulation A, issuers must make generic solicitation materials publicly available as an exhibit to the offering materials filed with the SEC offering starting within 30 days of generic solicitation. Offering must be made solely through a platform. File Form D with SEC not later than 15 days after first sale. File Form D with the SEC not later than 15 days after first sale. File test-the-waters documents, Form 1-A, any sales material and report of sales and use of proceeds with the SEC. Item 17 of Form 1-A has been amended to allow companies the option of filing redacted material agreements. Issuers may redact confidential information from material contracts and other agreements filed as exhibits and redact information that would constitute an unwarranted invasion of personal privacy in any exhibit. File test-the-waters documents, Form 1-A, any sales material and report of sales and use of proceeds with the SEC. Issuer subject to ongoing reporting requirements. Item 17 of Form 1-A has been amended to allow companies the option of filing redacted material agreements. Issuers may redact confidential information from material contracts and other agreements filed as exhibits and redact information that would constitute an unwarranted invasion of personal privacy in any exhibit. Requires the preparation of a Form C, which resembles a Form 1-A. Manner of Offering Dollar Limit Filing Requirement Type of Offering Rule 506(b) Rule 506(c) Tier 1 Regulation A Tier 2 Regulation A Regulation Crowdfunding Mayer Brown is a distinctively global law firm, uniquely positioned to advise the world’s leading companies and financial institutions on their most complex deals and disputes. With extensive reach across four continents, we are the only integrated law firm in the world with approximately 200 lawyers in each of the world’s three largest financial centers—New York, London and Hong Kong—the backbone of the global economy. We have deep experience in high-stakes litigation and complex transactions across industry sectors, including our signature strength, the global financial services industry. 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