The Securities Act of 1933 requires that a company making an offering of securities register that offering with the SEC, unless an exemption is available.
Registration is expensive and thus small and emerging companies usually raise funds by relying on an exemption from registration, such as the exemption which Regulation D (which includes Rule 506) provides for private offerings. Regulation A is one of the SEC’s least used exemptions from full registration of offerings.
Regulation A is conditioned on the company providing specific disclosures and that disclosure being reviewed by the SEC. In an effort to increase the use of Regulation A and promote access to capital for small companies, Congress required the SEC to adopt rules that increase the size of the exemption from $5 million to $50 million as part of Title IV of the JOBS Act of 2012. The SEC issued its final rules to effect this change on March 25, 2015. The new rules will go into effect around Memorial Day.
The changes are being popularly referred to as “Regulation A+.” The new rules create a two tier system for the use of Regulation A. Tier 1 includes an annual offering limit of $20 million and does not “preempt” state regulation of the offering (which means that offerings will need to be approved by regulators in each state in which a company is offering its securities).
Tier 2 includes an annual offering limit of $50 million and does preempt state regulation of the offering.
Generally, Regulation A allows operating companies to publicly offer their securities to all investors, whether through online platforms or by traditional means. Those securities are not “restricted securities” and may be resold by investors. The civil liability provisions of Section 12(a)(2) of the Securities Act will apply to issuers and intermediaries selling securities under Regulation A. This is a higher level of liability than applies to offerings made under Regulation D.
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Sara Hanks, co-founder and CEO of CrowdCheck, is an attorney with over 30 years of experience in the corporate and securities field. CrowdCheck provides due diligence and compliance services for online alternative securities offerings. Its services help entrepreneurs and project sponsors through the disclosure and due diligence process, give investors the information they need to make an informed investment decision and avoid fraud and help intermediaries avoid liability.
Sara’s prior position was General Counsel of the bipartisan Congressional Oversight Panel, the overseer of the Troubled Asset Relief Program (TARP). Prior to that, Sara spent many years as a partner of Clifford Chance, one of the world’s largest law firms. While at Clifford Chance, she advised on capital markets transactions and corporate matters for companies throughout the world. Sara began her career with the London law firm Norton Rose. She later joined the Securities and Exchange Commission and as Chief of the Office of International Corporate Finance led the team drafting regulations that put into place a new generation of rules governing the capital-raising process.
Sara received her law degree from Oxford University and is a member of the New York and DC bars and a Solicitor of the Supreme Court of England and Wales. She serves on the SEC’s Advisory Council on Small and Emerging Companies. She holds a Series 65 securities license as a registered investment advisor. Sara is an aunt, Army wife, skier, cyclist, gardener and animal lover.