Yesterday the SEC announced its adoption of final rules required to be adopted under the JOBS Act for a new and improved Regulation A now known as Regulation A+. The new rules purport to make capital-raising easier while maintaining strong investor protection.
Basics

The new rule divides offerings into Tier 1 and Tier 2. Tier 1 offerings are up to $20 Million over 12 months with no more than $6 Million of selling stockholders who are affiliates. Tier 2 offerings are up to $50 Million over 12 months with no more than $15 Million of selling stockholders who are affiliates.

Eligibility

Theoretically any private company or thinly traded company that complies with the basic rules is eligible. The rules, however, specifically exclude companies that:
1. Are already SEC reporting companies and certain investment companies,
2. Have no specific business plan or purpose or have indicated their business plan is to engage in a merger or acquisition with an unidentified company,
3. Are seeking to offer and sell asset-backed securities or fractional undivided interests in oil, gas or other mineral rights,
4. Have been subject to any order of the Commission under Exchange Act Section 12(j) entered within the past five years,
5. Have not filed ongoing reports required by the rules during the preceding two years, and
6. Are disqualified under the “bad actor” disqualification rules.

The Good

The law is an improvement from the previous version. It does improve access to capital albeit incrementally. Regulation A+ provides Tier 2 offerings with the ability to avoid dealing with securities law on a state by state level.

The Bad

Only Tier 2 offerings will be able to take advantage of state law preemption. The cost of capital will still be significant for Tier 1 offerings especially since there will be no state law preemption. The costs (both external and internal) of the following requirements in Tier 2 offerings will also not be insignificant:
1. A requirement to provide audited financial statements, and
2. A requirement to file annual, semiannual and current event reports

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