Jul 17, 2015

SEC Gives Guidance on Regulation A+

Equity Crowdfunding, Financing By Lou Bevilacqua

The SEC recently issued Compliance and Disclosure Interpretations (CDIs) relating to amended Regulation A. The full text of theCDIs may be obtained using the following link These CDIs provide guidance to issuers that desire to engage in a Regulation A Offering. This blog post summarizes the CDIs.

Issuer’s interested in Regulation A should also review the SEC’s Small Entity Compliance Guide, which can be obtained using the following link:

In a prior blog post, you can obtain a copy of our Entrepreneur’s guide to Regulation A+ which contains a sample timeline and all in cost estimate for completing a Regulation A Financing.

Filing of Non-Public Offering Circulars Once Public Filing Occurs

Regulation A permits issuers to file draft offering statements for SEC Staff review in a non-public way. But, if an issuer opts to non-publicly file its offering statement, when it ultimately files the final version, it must attach as an exhibit all prior draft submissions and related correspondence. The CDIs indicate that the issuer can make the non-public draft offering statements public on the EDGARLink submissions page (see Chapter 7 (Preparing and Transmitting EDGARLink Online Submissions) of Volume II of the EDGAR Filer Manual, available at: at the time it publicly files its Form 1-A instead of filing such materials as an exhibit to its publicly filed Form 1-A. However, the issuer is still required to file as an exhibit any related, non-public correspondence submitted by or on behalf of the issuer regarding non-public draft offering statements.

Seeking Confidential Treatment of Portions of Draft Correspondence

The Staff of the SEC noted that an issuer who desires confidential treatment of portions of correspondence provided to the Staff on a non-public basis should submit a redacted copy of the correspondence via EDGAR, with the appropriate legend indicating that it was being submitted pursuant to a confidential treatment request under Rule 83. At the same time, it would submit an unredacted paper version to the SEC, in the manner required by that rule. Then, when the issuer makes its public filing of the offering statement, it will be required to file as an exhibit to the electronically filed offering statement any previously submitted non-public correspondence related to the non-public review. The confidential portion would be redacted and the requisite legends included in that exhibit.

A Company Headquartered in the U.S. or Canada with Operations Outside of the U.S. or Canada May Still Use Regulation A.

An issuer will be considered to have its “principal place of business” in the United States or Canada for purposes of determining issuer eligibility under Rule 251(b) of Regulation A if its officers, partners, or managers primarily direct, control and coordinate the issuer’s activities from the United States or Canada.

Previous Reporting Companies can use Regulation A.

A company that was previously required to file reports with the SEC under Section 15(d) of the Exchange Act, that has suspended its Exchange Act reporting obligation by satisfying the statutory provisions for suspension in Section 15(d) of the Exchange Act or the requirements of Exchange Act Rule 12h-3 is not considered to be subject to Section 13 or 15(d) of the Exchange Act for purposes of Rule 251(b)(2) of Regulation A.

Voluntary Filers can use Regulation A.

A voluntary filer under the Exchange Act is an eligible issuer for purposes of Rule 251(b)(2) of Regulation A. A voluntary filer is not subject to Exchange Act Section 13 or 15(d) because it is not obligated to file Exchange Act reports pursuant to either of those provisions.

Subsidiaries of Public Companies can use Regulation A.

A private wholly-owned subsidiary of an Exchange Act reporting company parent is eligible to sell securities pursuant to Regulation A. However, the Exchange Act reporting company parent could not be a guarantor or co-issuer of the securities of the private wholly-owned subsidiary.

Regulation A can be Relied Upon by an Issuer in a Business Combination

Regulation A may be relied upon by an issuer for business combination transactions, such as a merger or acquisition. The final rules do not limit the availability of Regulation A for business combination transactions, but, as the SEC (SEC Rel. No. 33-9497) indicated, Regulation A would not be available for business acquisition shelf transactions, which are typically conducted on a delayed basis.

Newly Formed Company’s Can Provide Balance Sheet as of Inception

A recently created entity may choose to provide a balance sheet as of its inception date. As long as the inception date is within nine months before the date of filing or qualification and the date of filing or qualification is not more than three months after the entity reached its first annual balance sheet date. The date of the most recent balance sheet determines which fiscal years, or period since existence for recently created entities, the statements of comprehensive income, cash flows and changes in stockholders’ equity must cover. When the balance sheet is dated as of inception the statements of comprehensive income, cash flows and changes in stockholders’ equity will not be applicable.

An Issuer can Test the Waters through a Platform Limiting the Number of Characters that Can Be Included if it Properly Includes Required Regulation A Legends through Hyperlink.

The staff will not object to the use of an active hyperlink to satisfy the requirements of providing necessary Regulation A legends in the following limited circumstances:

  • The electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication;
  • Including the required statements in their entirety, together with the other information, would cause the communication to exceed the limit on the number of characters or amount of text; and
  • The communication contains an active hyperlink to the required statements that otherwise satisfy Rule 255 and, where possible, prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.

Where an electronic communication is capable of including the entirety of the required statements, along with the other information, without exceeding the applicable limit on number of characters or amount of text, the use of a hyperlink to the required statements would be inappropriate.

No Preemption of Resales under Regulation A

State securities law registration and qualification requirements are only preempted with respect to primary offerings of securities by the issuer or secondary offerings by selling securityholders that are qualified pursuant to Regulation A and offered or sold to qualified purchasers pursuant to a Tier 2 offering. Resales of securities purchased in a Tier 2 offering must be registered, or offered or sold pursuant to an exemption from registration, with state securities regulators.

Transfer Agent Must be Engaged before Issuer May Rely on Conditional Exemption from Mandatory Registration under Section 12(g)

An issuer is required to engage the services of a registered transfer agent before being able to avail itself of the conditional exemption from mandatory registration under Section 12(g) of the Exchange Act described in Exchange Act Rule 12g5-1(a)(7) in order to satisfy the requirements of Rule 12g5-1(a)(7).