Regulation A+ Capital Raising Basics

On June 19, 2015, new rules expanding Regulation A became effective. The expanded rules are commonly known as Regulation A+. The new rules which were promulgated under the Jumpstart Our Business Startups Act (JOBS Act), create two Tiers of exempt offerings, both of which allow securities to be offered and sold to the general public.

Tier 1 offerings allow the issuer to offer and sell up to $20 million in a 12-month period. Tier 1 offerings do not preempt state Blue Sky laws. Tier 2 offerings allow the issuer to raise up to $50 million in a 12-month period. A notable advantage of Tier 2 over Tier 1 offerings is preemption of state Blue Sky laws. As discussed below, Tier 2 offerings require the issuer to provide audited financial statements and comply with ongoing reporting obligations.

Testing the Waters

Companies may solicit investor interest for a potential offering, both before or after the filing of their Regulation A+ offering statement. Solicitation materials used after the offering statement is publicly filed, must be accompanied by a preliminary offering circular or provide a URL where the preliminary offering statement can be obtained. Additionally, materials used to solicit investors must be filed as exhibits to the Form 1-A offering statement.

Confidential Submission

A Company may submit its Form 1-A Offering Circular to the Securities and Exchange Commission (SEC) on a confidential basis before it is filed publicly so long as the documents are publicly filed not later than 21 calendar days before qualification by the SEC.

Disclosure Requirements

Companies conducting Regulation A+ offerings must file an offering statement on Form 1-A with the Securities & Exchange Commission. The form must be filed through the SEC’s EDGAR system. Form 1-A Offering Circulars have three parts:

Part I (Notification),

Part II (Offering Circular), and

Part III (Exhibits).

The Offering Circular disclosure in Part II of Form 1-A is similar to what is required by a Form S-1 registration statement under the Securities Act. The disclosure requirements for Tier 1 and Tier 2 offerings vary slightly.

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