Yesterday, December 18, 2013, the SEC released proposed rules to carry out the rulemaking mandate of Title IV of the JOBS Act. The proposed rules both retain and modernize the current framework of Regulation A, by expanding Regulation A into two tiers. Tier 1 would preserve the current offering threshold in Regulation A, which permits an issuer to offer and sell up to $5 million in any 12-month period, including no more than $1.5 million in securities sold on behalf of selling stockholders. Tier 1 offerings would be subject to state securities review. Tier 2 would provide an exemption for offerings of up to $50 million in any 12-month period, including no more than $15 million in securities sold on behalf of selling stockholders. Offerings in both tiers are subject to the same basic requirements relating to issuer eligibility, disclosure and other matters.
The proposed rules are intended to help increase access to capital for smaller companies. The proposed rules also take into account all of the factors that were cited in the GAO Report on existing Regulation A. The proposed rules are intended to increase reliance on Regulation A. Generally, the proposed rules build on the existing framework of Regulation A. For example, the proposed rules would preserve the concept of “eligible issuer.” The exemption will be available to non-reporting companies organized in the United States or Canada, and would exclude investment companies, companies delinquent in their filing requirements, and issuers subject to certain SEC orders. An issuer would be required to prepare and submit to the SEC for review an offering statement. The offering circular may be submitted confidentially to the SEC for its review. The offering circular would then be filed electronically through EDGAR. Consistent with current Regulation A, issuers would be permitted to conduct test-the-waters communications. The proposed rules would incorporate a new investment limit. The proposed rule would limit the permissible amount to be invested by any individual to the greater of 10% of the individual’s net worth or annual income. In addition, the proposed rules contain certain ongoing reporting requirements. An issuer that has conducted a Regulation A offering will be required to make certain limited ongoing SEC filings.
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