Regulation A (Reg A)

SEC Regulation A (Reg A) and Regulation A+ (Reg A+)

Reg A Exempt Offering

Prospectus’ team can help write your Reg A or Reg A+ prospectus or offering memorandum for private a placement. We provide comprehensive Reg A document preparation services that can be used to access equity funding or debt financing.

Regulation A is a SEC program geared to create exemptions for companies offering up to $5 million is funding.*  The actual dollar amount is set to not exceed $5 million but under Reg A, a company can choose to raise the capital via equity or debt, or a mixture of both.  The Regulation A Exempt Offering is based on existing state and federal exemptions for raising equity capital through the sale of private equity or debt securities.  Such sales that are exempt may be utilized when institutions like banks and or other firms that allocate capital are not accessible, or because they mandate an increase in the equity percentage.

In 2015, the US Securities & Exchange Commission updated Reg A to enable larger capital raises via Regulation A+ . A full discussion that distills the distinction between these two regulations is available via Prospectus.com blog post

State and federal statutes for use of exemptions include the following qualifications:

  • Need US$1 to US$5 million in funding
    Intrastate transaction (preferred, but not required)
    • Have a structured business plan
    • Been in business for at least three years (not mining, oil and gas)
    • Have good credit
    • Have positive EBITDA
    • GAAP compliant financials
    • Able to be qualified as an issuing broker
    • Have experienced management team

The requirements for companies that will use a Regulation A, in accordance with the conditional small issues exemption from registration under the Securities Act of 1933 [17 CFR 230.251 – 230.263], are:

  • Must have specific business operations, cannot be a “blank check,” development stage with no specific plan or purpose other than a merger, investment company under the Investment Company Act of 1940, or conducting mining, oil or gas exploration and production operations;
    No minimum security/share price;
    • Financial statements do not need to be audited but must be GAAP compliant;
    • The issuing company must secure a written legal opinion of the offering by counsel;
    • Form 1-A filed with the SEC;
    • “Test the waters” before filing;
    • Twenty (20) days must pass between solicitation statement and first sale of the security;
    • Issuer qualified as an issuing broker in each state in which the security is offered;
    • Registration in each state in which the security is offered;
    • Once approved, seven original copies to be filed with the SEC;
    • Filing fees are required in each state in which the security is offered;
    • The issuing company cannot offer a dividend or transact a stock split for at least two years; and
    • The time frame from start to finish is approximately four to eight months.

Prospectus’ team can help structure your Regulation A private placement offering and can write the prospectus, offering memorandum or private placement memorandum in clear and concise manner that will comply with Regulation A.

 

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SEC Regulation A (Reg A) and Regulation A+ (Reg A+)