The Securities and Exchange Commission on Wednesday adopted final rules to facilitate smaller companies’ access to capital by updating and expanding Regulation A, an existing exemption from registration for smaller issuers of securities.
The rules, mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act, include an updated exemption allowing smaller companies to offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure and reporting requirements.
“These new rules provide an effective, workable path to raising capital that also provides strong investor protections,” said SEC Chairwoman Mary Jo White, in a statement. “It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”
William Beatty, the North American Securities Administrators Association’s president and Washington Securities Director, though, said that after the final rule was approved “it appears that the SEC has adopted a rule that fails to fully recognize the significant benefits of this program to issuers and investors alike.”
The program has been lauded for effectively streamlining the state review process that promotes efficiency by providing centralized filing, unified comments, and a definitive timeline for review, Beatty said.
“We continue to have concerns that the rule does not maintain the important investor protection role of state securities regulators and must look more closely at the final rule as we evaluate our options.”
The final rules (referred to as Regulation A+) provide for two tiers of offerings: Tier 1, for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer; Tier 2, for offerings of securities of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.
Both Tiers are subject to certain basic requirements while Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.
The final rules also provide for the preemption of state securities law registration and qualification requirements for securities offered or sold to “qualified purchasers” in Tier 2 offerings.
Tier 1 offerings will be subject to federal and state registration and qualification requirements, and issuers may take advantage of the coordinated review program developed by NASAA.