Offerings

On June 19, 2015, new amendments to Regulation A took effect which should increase capital raising options of some smaller businesses. Formerly, the Regulation A exemption was limited to $5 million. The new amendments provide an avenue for businesses to raise up to $50 million of capital. As a result of the new amendments, Regulation A is now divided into two tiers, “Tier 1” and “Tier 2.”

In Tier 1 offerings, companies can raise up to $20 million over a one year period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer. Under Tier 1, the offering must pass state securities regulation in any state where investors are located.

In Tier 2 offerings, companies can raise up to $50 million over a one year period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer. A Tier 2 offering has the significant advantage of being exempt from many state registration requirements.
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On the same day that it released rule amendments allowing some Rule 506 offerings to be sold through public solicitation, the SEC proposed an additional set of rule amendments for those offerings. While the newly adopted rule primarily concerns verification of accredited investor status, the additional proposals relate more to the materials used by issuers to solicit those investors.

Currently, offerings under Regulation D require a Form D to be filed 15 days after the first sale; no prefiling is required. The proposal, however, would require that any offering to be sold using general solicitation would require that Form D be filed with the SEC 15 days prior to any solicitation. The SEC has also proposed a temporary rule, Rule 510T, which would go further and require all solicitation material to be filed with the SEC prior to its first use. Under the proposal, this temporary rule would expire in two years.

In addition, the proposed rule changes would require solicitation materials to include legends informing recipients of certain facts relating to the securities offered, such as the requirement that all investors must be accredited, that regulators have not approved the offering and that the securities have transfer restrictions. The proposal also extends to private funds the Rule 156 requirements currently relating to investment company advertising materials.
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Articles Tagged with Offerings

New Amendments to Regulation A

SEC Proposes More Rules and Oversight for Public Rule 506 Offerings