The SEC recently approved offerings of securities to non-accredited investors via a new regulation called Regulation A+ (“Reg. A+”). Under Reg A+, companies can offer up to $50M a year in sales of securities to non-accredited investors, without having to comply with all of the disclosure and regulatory requirements of a standard IPO.
Until the approval of this regulation, companies could avoid IPO requirements by making offers of securities under Rule 506 of Regulation D. This allowed companies to sell unlimited amounts of securities to any number of accredited investors and to a limited number of non-accredited investors, subject to certain disclosure requirements and making the company books available to the investors prior to investment. However, the definition of an “accredited investor” is an individual with a net worth of more than $1,000,000 or a yearly income of $200,000 as an individual or $300,000 with their spouse. As a result, the available investor pool for Regulation D offerings is quite limited.
Reg. A+, however, allows for the sale of securities to non-accredited investors, which substantially enlarges the potential investor pool. There are two Tiers of offerings under Reg. A+: Tier 1, for offerings of up to $20M a year, and Tier 2, for offerings of up to $50M a year. Importantly, Tier 1 offerings are still subject to state-by-state “Blue Sky” laws, which can require public disclosures and state filings, and Tier 2 offerings are exempt from such laws, but are subject to SEC disclosures and filing of, among other things, audited financial statements and ongoing operating reports. However, the burden is still substantially lower than providing the disclosures required by an IPO, and allows for investments by large groups of non-accredited investors for sums up to $50M.
Reg A+ may be attractive to organizations looking to perform so-called “crowdfunding” or to organizations looking to raise low-to-mid-seven figure sums without having to take on the burden of institutional or angel investors.
Though Reg A+ is substantially simpler than an IPO, there are still many nuances and requirements that must be met in order to qualify. Also keep in mind that if you reach 500 investors you will have reporting requirements as a “public company” under the Securities Act of 1934. If your organization is interested in this sort of funding or have any questions, please contact Charles B. Hughes or William A. Newman.