New SEC Rules Provide Smaller Companies Access to Capital, Investors More Choices

Wading through investment options can be an arduous task, but the wide range of choices is exactly what makes the market swell with money-making opportunities. The U.S. Securities and Exchange Commission (SEC) has further widened the spectrum with a set of new rules designed to give smaller companies greater access to capital and, in turn, furnish investors with even more investment choices.

The new rules update and expand Regulation A, an existing exemption from registration for smaller issuers of securities, and implement Title IV of the Jumpstart Our Business Startups (JOBS) Act. The new rules, also referred to as Regulation A+, will be effective 60 days after publication in the Federal Register.

The final rules will enable 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,” SEC Chair Mary Jo White stated in the news release dated March 25. “It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”

Regulation A+ provides 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 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 apply to businesses that:

•           Are already SEC reporting companies and certain investment companies.

•           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.

•           Are seeking to offer and sell asset-backed securities or fractional undivided interests in oil, gas or other mineral rights.

•           Have been subject to any order of the Commission under Exchange Act Section 12(j) entered within the past five years.

•           Have not filed ongoing reports required by the rules during the preceding two years.

•           Are disqualified under the “bad actor” disqualification rules.

For more information, read the full release here: http://www.sec.gov/news/pressrelease/2015-49.html

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