Congressional Move May Increase Regulation A+ Cap Further Expanding Small Businesses’ Ability to Raise CapitalMarch 2018
On March 15, 2017, the House passed the “Regulation A+ Improvement Act of 2017”, a bill that, if passed by the Senate and signed into law, will increase the limit of exempted offerings under Regulation A+ to $75 million, from the current $50 million limit, further expanding small businesses’ ability to raise capital. In addition to increasing the cap, the House bill also authorizes the SEC to adjust the Regulation A+ limit for inflation every two years.
In July 2015, the Jumpstart Our Business Startups (JOBS) Act amended Regulation A under the Securities Act of 1933, a longstanding but underutilized exemption from registration of securities. Regulation A+, as it has come to be known, provides for two tiers of securities offerings: Tier 1, for offerings of up to $20 million, and Tier 2, for offerings of up to $50 million. Regulation A+ has expanded small companies’ ability to raise significant capital with reduced regulatory barriers, including scaled back disclosure and more flexibility in “testing the waters” communications with investors prior to an offering.
As was expected, after the Regulation A+ amendments became effective, the rate of offerings utilizing the exemption increased. By further increasing the cap to $75 million, the House hopes to continue to promote the flow of capital to small companies by allowing for larger offerings under the exemption. The increased cap may also make Regulation A+ offerings more attractive to major underwriters that would not have participated in a deal with a smaller offer size.
The JOBS Act required the SEC to review the $50 million limit every two years to determine whether to increase the limit. In April 2016, the SEC reviewed the limit, but decided to leave it in place through 2018, citing a lack of information on the new rule, which resulted in some criticism of the SEC.
If you are considering Regulation A+ to capital raise and would like more information, contact:
Morris F. DeFeo at +1 212 592 1463 or [email protected]
© 2018 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.