Do You Qualify to Raise Capital Under Regulation A+?

By now you might have an idea what Regulation A+ entails, and are curious to know if your company qualifies to raise capital under this rule. To be sure, there are two sets of rules you should understand before proceeding, they are known as Tier I and Tier II. The SEC has since sent out a press release and a recent bulletin to further explain the details of the two tiers. We’ve summarized those qualifications in a few short paragraphs.

Tier 1

First, it is important to know whether an offering has been qualified. To qualify for both tiers under Regulation A+, a company can only accept payment for the sale of its securities once its offering materials have been qualified by the SEC.

Companies that are conducting a Tier 1 offering must generally have their offering materials qualified by state securities regulators in the states where they plan to sell their securities. Investors should be aware, however, that the SEC’s qualification of an offering statement does not mean that the SEC has assessed the accuracy of the offering or its merits.

Under Tier 1, a company can raise up to $20 million in any 12-month period. In connection with any offering under Regulation A+, a company must also provide all investors with access to an offering circular, which is an abbreviated prospectus for a new security listing. For Tier 1, the circular must be filed with, and subject to be reviewed and qualified by, the SEC as well as the securities regulator in the states where it is being conducted.

It should also be understood that the financial statements disclosed in a Tier 1 offering do not need to be audited by an independent accountant. Companies only need to report on the status of the offering. As a result, however, there will not be the regular flow of company information as with companies listed on the NYSE or NASDAQ, for example.

Tier 2

Under the Tier 2 option, companies can offer securities up to $50 million in any 12-month period. And as with Tier 1, all investors must be provided with an offering circular or given information to access it. For Tier 2, the offering circular is also subject to review and qualification by the SEC, but is not subject to review by state securities regulators.

The offering circular will also contain important information about the offering, but unlike the first tier, financial statements disclosed in Tier 2 have to be audited by an independent accountant. Companies raising money under Tier 2 will also file regular reports with the SEC, but are only required to file a semiannual report, annual report, or interim current report should there be certain enumerated events.

Furthermore, securities offered under Tier 2 may also be listed on a national exchange, subject to the requirements of that particular exchange. In such circumstances, the company would be required to comply with the more extensive ongoing reporting requirements, including the requirement to file quarterly reports.

Overall, and as we reported in an earlier blog post, Regulation A+ allows smaller companies to raise money more cost-effectively. If eligible, this rule could mean large savings and profits for smaller companies. To learn more about our products and services, call one of our agents at 732-580-5036 or visit our site at www.edgaragents.com.