By: Christopher L. Wallace, CPA | Business Assurance & Advisory Services Partner | Financial Services Industry Team Leader
On March 25, 2015, the SEC released final rules for “Regulation A+” under Title IV of the “Jumpstart Our Business Startups Act” (“JOBS”), which became effective on Friday June 19, 2015.
Title IV has been under consideration by the SEC since the JOBS Act was passed in April of 2012. Previously under Regulation A, private companies could raise no more than $5 million in capital. Under the revised rules released in March, Regulation A+ allows companies to raise up to $50 million. The SEC established two tiers for raising capital under Regulation A+. All capital raises between $20 million and $50 million qualify as Tier II capital raises, which is significant because Tier II preempts state regulators. Previously under Regulation A, state securities laws required regulation in every individual state where securities are sold, which made the entire process inefficient and ineffective. State regulation still applies to Tier I capital raises under Regulation A+ (under $20 million). Other key components of Regulation A+ include:
- Non-accredited investors may invest (although Tier II investors will be subject to certain investment limits)
- Investors will be able to self-certify their net income or net worth for purposes of the investment limits (no burdensome documentation will be required), and
- There are no restrictions on general solicitation through social media or any other marketing platform
All of these rules make it appear that Regulation A+ could provide significant opportunities for small businesses to raise capital. However, there are still numerous compliance requirements throughout Regulation A+, including the requirement to provide an offering circular that must be approved by the SEC. Tier II registrants will need to provide two years of audited financial statements, as well as provide on-going SEC filings which include:
- An annual disclosure
- A semi-annual report, and
- Current reports of significant events
While these are scaled back from Regulation S-X rules, the complexity of financial reporting under Regulation A+ will likely be significantly enhanced compared to what most private companies are accustomed to.
Private companies considering raising capital under Regulation A+ should plan the capital raise well in advance, and should expect a significant burden on its accounting and finance team during the capital raise process. There is also still uncertainty in terms of how the SEC regulators will govern the process.
If SEC inspectors hold small companies to the same standards of large public companies in terms of detail disclosures and assumptions, particularly in the offering circular, registrants will find that the process to be significantly more costly than they may have expected.
Questions on how Regulation A+ may benefit your business? Contact your Keiter representative or the Financial Services Industry team: firstname.lastname@example.org | 804.747.0000.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.