The New and Improved Regulation A

By Mark Roderick CrowdFunding Beat  Sr. contributing editor and crowdfunding attorney with Flaster/Greenberg PC.

“How long will it take?” That’s one of the two questions I’m asked most often about Regulation A.

The answer is that if everything goes smoothly, it should take about 20 – 24 weeks from the day an issuer decides to raise money using Regulation A until it begins selling securities. Every company is different, of course, and lots of things can delay the process, but 20 – 24 weeks is a good rule of thumb.

With this Regulation A Timeline, I hope to provide issuers and their advisors with a framework for conducting a Regulation A offering, with tasks and milestones. Three notes:

  • Don’t try to view this on your phone! There’s a lot to cover.
  • As you’ll see, there’s a lot to do in the first few weeks. The more thorough the attention given to the earliest tasks, the more smoothly the process will roll out.
  • By definition, this Timeline is from the perspective of the lawyer. Each member of the team – the accountant, the escrow agent, etc. – will have a separate timeline, all within the same 20 – 24 week framework.

What is the other question I’m asked most often about Regulation A? You guessed it. I’ll cover assembling the team and the cost of Regulation A in another post.

The JOBS Act created three flavors of Crowdfunding:

  • Title II Crowdfunding, which allows issuers to raise an unlimited amount of money from an unlimited number of investors using unlimited advertising – but is limited to accredited investors.
  • Title III Crowdfunding, which allows issuers to raise up to $1 million per year from anyone, including non-accredited investors.
  • Title IV Crowdfunding, which modified the old Regulation A and is sometimes referred to as Regulation A+.

Quick Summary of Regulation A

  • Raise up to $50 million per year for each issuer
  • Raise money from both accredited and non-accredited investors
  • Register with the SEC
  • Takes about five months, start to finish
  • No State-level registration
  • Shares freely tradeable from day one
  • Sales by existing shareholders
  • Regulation A shareholders not counted toward Exchange Act limits for full reporting
  • Mini-IPO, but with much lower cost

Two Tiers

Theoretically, there are two “tiers” under Regulation A:

Tier One Tier Two
Amount Per Year $20 million $50 million
Non-Accredited Allowed Yes Yes
Limits on Investment None For non-accrediteds, 10% of income or net worth, whichever is greater, per offering.
Audited Financials No Yes
Registration with SEC Yes Yes
Registration with State Yes No
Excluded from Exchange Act Limits Yes Yes
Shares Freely Tradeable Yes Yes
Post-Offering Reporting No Yes
Testing the Waters Yes Yes
Online Distribution Allowed Yes Yes
Bad Actor Limits Yes Yes

Because of the exemption from State registration, most companies will choose Tier Two.

Companies That Cannot Use Regulation A

Investment Companies Companies that own stock or other securities in other companies.
Foreign Companies Issuers must be organized and have their principal place of business in the U.S. or Canada.
Oil and Gas Companies Can’t sell fractional undivided interests in oil and gas rights, or a similar interest in other mineral rights.
Public Companies Can’t be a publicly-reporting company.
Companies Selling Asset-Backed Securities For example, interests in a pool of credit card debt.

Where Regulation A Makes the Most Sense

  • Pools of high-quality real estate assets, especially REITs
  • High quality assets in inefficient markets
  • Sexy companies (companies with high social-media followers or potential)

Additional Resources

261

Markley S. Roderick concentrates his practice on the representation of entrepreneurs and their businesses. He represents companies across a wide range of industries, including technology, real estate, and healthcare.

Tags: , , , , , , , , , , ,

HEADLINE NEWS

The HinduCrowdfunding healthcare costs: Where there's a bill, there's a benefactorThe HinduThrough crowdfunding sites like Milaap and Ketto, the group has managed to raise ₹80 lakh to partially fund 16 transplants. However, as the cost of a paediatric transplant can be as hi [...]

Crowdfunding initiative seeks proposalsThe Keene SentinelCrowdfunding is a method by which people or organizations raise money for business ideas, personal causes and more, typically from many donors and through online campaigns. Kickstarter and GoFundMe are two platforms that have he [...]

Business InsiderCrowdfunding campaign to support the families of Manchester attack victims passes £1 million markBusiness InsiderA crowdfunding campaign to raise money to provide support for the families of those injured and killed in the Manchester terrorist attack has now raised mor [...]

TIMECrowdfunding Campaign Raises $55000 for Homeless Man who Helped Manchester Terror Attack VictimsTIMEA series of crowdfunding campaigns have raised more than £42,400 ($54,800) in support of a homeless man who said he rushed to the aid of people wounded in Monday night's suicid [...]

New York MagazineFacebook Rolls Out Crowdfunding to EveryoneNew York MagazineDepending on your perspective, the rise in popularity of crowdfunding is either a fantastic new way that the internet lets strangers help each other out, or emblematic of the decay of institutional safeguards [...]

San Francisco ChronicleBusiness crowdfunding has little payoff so farSan Francisco ChronicleCrowdfunding, a term which covers raising money in a variety of ways, not just selling equity, isn't new. Companies have for years been soliciting advance orders or other support on Kickst [...]

CurbedNew real estate crowdfunding site focuses on community developmentCurbedCrowdfunding has existed for years, and other firms, such as FundRise and Realty Mogul, have focused on property development, but the Small Change model offers a new spin for the real estate space. For years [...]

Marketplace.orgCrowdfunding has created a whole new consulting industryMarketplace.orgWhen crowdfunding sites like Kickstarter and Indiegogo first got their start, the idea was that all an entrepreneur needed was a cell-phone camera and a dream.and more » [...]

ZDNet$300 Windows 10 Surface Pro lookalike makes its crowdfunding debutZDNetChuwi's SurBook is a low-price 2-in-1 tablet PC. Image: Chuwi. In the wake of the Microsoft Surface Pro unveiling in Shanghai, Chinese hardware maker Chuwi has launched its crowdfunding campaign for a Sur [...]

Hollywood ReporterAdam Carolla Launches Crowdfunding Campaign for 'No Safe ...Hollywood ReporterThe film, from Carolla and radio host Dennis Prager, is about political correctness at universities.Adam Carolla Is Crowdfunding Doc Criticizing Safe Spaces - VultureVultureall 7 news [...]

CFB Finance

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

CrowdFund Beat Media

The World's First Hybrid Smartwatch Raised over Five Million in Crowdfunding SnapMunk upflow.co/l/2lQ1 pic.twitter.com/kKQ2lD1SoO

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |