On April 5, 2012, President Obama signed a landmark legislation called The JOBS Act into law. The JOBS Act greatly expanded entrepreneurs’ access to capital, allowing them to go to the “crowd” and publicly advertise their capital raises.
Initially, private companies could only crowdfund from accredited investors, the wealthiest 2% of Americans. On June 19, 2015, three years after the JOBS Act was initially signed into law, Title IV (Regulation A+) of the JOBS Act went into effect. Title IV allows private companies to raise money from all Americans.
As mandated by the JOBS Act, the U.S. Securities and Exchange Commission increased the amount that can be raised by an issuer under the exemption from $5 million to $50 million and created two offering categories: (1) Tier 1 for offerings 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; and (2) Tier 2 for offerings 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.
Like an IPO, Regulation A+ allows companies to offer shares to the general public and not just accredited investors. Companies looking to raise capital via Regulation A+ will first need to file with the SEC and get approval before launching a mini-IPO. However, the fees associated with a Regulation A+ offering are much lower than a traditional IPO and the ongoing disclosure requirements are much less burdensome, effectively making a Regulation A+ offering a mini-IPO.
Regulation A+ limits sales by all selling security-holders to no more than 30 percent of a particular offering in the issuer’s initial Regulation A offering and subsequent Regulation A offerings for the first 12 months following the initial offering.
For offerings of up to $20 million, the issuer could elect whether to proceed under Tier 1 or Tier 2. Both tiers would be subject to basic requirements as to issuer eligibility, disclosure, and other matters, drawn from the current provisions of Regulation A. Both tiers would also permit companies to submit draft offering statements for non‑public review by SEC staff before filing, permit the continued use of solicitation materials after filing the offering statement, require the electronic filing of offering materials and otherwise align Regulation A with current practice for registered offerings.
The exemption would be limited to companies organized in and with their principal place of business in the United States or Canada. The exemption would not be available to companies that”: (1) are already SEC reporting companies and certain investment companies; (2) have no specific business plan or purpose or have indicated their business plan is to engage in a merger or acquisition with an unidentified company; (3) are seeking to offer and sell asset-backed securities or fractional undivided interests in oil, gas or other mineral rights; (4) have been subject to any order of the Commission under Exchange Act Section 12(j) entered within the past five years; (5)have not filed ongoing reports required by the rules during the preceding two years; and (6) are disqualified under the “bad actor” disqualification rules.
Regulation A+ provides for the preemption of state securities law registration and qualification requirements for securities offered or sold to “qualified purchasers,” defined to be any person to whom securities are offered or sold under a Tier 2 offering. A Tier 1 offering is not only subject to SEC review, but also must be reviewed by each state securities’ agency in which the issuer wants to see its securities.