Reporting Companies May Now Use Regulation A+

An almost overlooked provision[1] in the recent amendments to the Dodd–Frank[2] legislation extends the benefits of the highly popular Regulation A+ offering regime to public companies for the first time. The Reg. A+ rules[3] now provide that a company cannot use Reg. A+, if it is subject to the reporting requirements under Sections 13 or 15(d) of the Securities Exchange Act of 1934[4] (the “Exchange Act”) immediately prior to the offering. The legislation, which President Trump signed into law on May 24, 2018, directs the Securities and Exchange Commission (the “SEC”) to eliminate this limitation on the use of Reg. A+.

Furthermore, the legislation[5] directs the SEC to amend the Reg. A+ rules[6] to provide that any issuer that is an Exchange Act reporting company will satisfy the Reg. A+ periodic and current reporting requirements, if the issuer complies with the reporting requirements of Section 13 of the Exchange Act. Except for this amendment, a reporting company that completed a Tier 2 Reg. A+ offering would be required to file the periodic and current reports specified in the Reg. A+ rules, as well as the periodic reports otherwise required under the Exchange Act.

According to a recent study, 267 Reg. A+ filings occurred between August 13, 2012 and May 24, 2016, leading the study’s author to conclude that Reg. A+ “may now rival or even surpass its previously more popular predecessor, Regulation's Rule 506.”[7] There are many reasons for the popularity of Reg. A+. Some of the advantages are:

• purchasers of Reg. A+ securities may immediately resell them, as they are not restricted;
• companies can offer shares to both accredited and non-accredited investors; and
• companies can engage in public advertising campaigns to market and promote the offering, which is not allowed in a traditional IPO or private placement.

The extent to which reporting companies will utilize Reg. A+ remains to be seen. Reporting companies that are eligible to use Form S-3 will likely not abandon such streamlined registration method in favor of Reg. A+. On the other hand, reporting companies not eligible to use Form S-3 and companies not trading on a national exchange are likely to find the exemption for merit-based state regulation afforded to Tier 2 Reg. A+ offerings a distinct advantage[8].

References

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[1]
[2] Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law No. 111-203 (2010)
[3] 17 C.F.R. §230.251(b)(2)
[4] 15 U.S.C. 78a et seq.
[5] Economic Growth, Regulatory Relief and Consumer Protection Act, Public Law No. 115-174 §508(2) (2018)
[6] 17 C.F.R. §230.257(b)
[7] N. Newman, Regulation A+:  New and Improved after the JOBS Act or a Failed Revival?, 12 Virginia Law & Business Review 5, 23 (2018)
[8] 17 C.F.R. §230.256

Economic Growth, Regulatory Relief and Consumer Protection Act, Public Law No. 115-174 §508(1) (2018)