By Peter V. Hogan

Business is booming but do you find yourself in need of additional capital to expand operations? Private companies that need capital should evaluate whether Regulation A+ is a viable option to raise money and if the compliance associated with utilizing Regulation A+ is worth the time and effort. Regulation A+ went into effect in June of 2015, spurred by the JOBS Act, and private companies are hoping to utilize the new rules to raise capital from small investors within the general public, not just from accredited and institutional investors. Regulation A+ attempts to make it easier for these smaller companies to raise capital by increasing the potential pool of investors and limiting the amount of disclosure requirements. Under Regulation A+, small companies can raise up to $50 million in a 12-month period in new capital through what’s being called a “Mini-IPO”. In evaluating the pros and cons of doing a “Mini-IPO”, a company must look at the key features of a Regulation A+ offering.

1. Determining Eligibility

Regulation A+ is available only to companies organized in and with their principal place of business in the United States or Canada. Generally, Regulation A+ is not available to companies that are already public reporting companies or “shell” companies with no specific business plan. Additionally, companies that issue fractional undivided interests in oil or gas rights or similar interests in other mineral rights are not eligible to utilize Regulation A+. Companies that are subject to “bad actor” disqualifications, where the company or other relevant persons (such as underwriters, placement agents and the officers, directors and significant shareholders of the company) have experienced a disqualifying event, such as being convicted of securities fraud or other violations of law, also are prohibited from raising money under Regulation A+.

2. Preparation of Audited Financial Statements

Companies looking to raise money via Regulation A+ will need to file an offering statement with the Securities and Exchange Commission. A Tier 1 offering consists of securities offerings of up to $20 million in a 12-month period, with no more than $6 million in offers by selling security-holders that are affiliates of the company, whereas a Tier 2 offering consists of offerings of up to $50 million in a 12-month period, with no more than $15 million in offers by selling security-holders that are affiliates of the company. A Tier 2 offering also requires that the company file audited financial statements for the last two years. Hiring  an experienced auditor is imperative, since the SEC has routinely rejected many initial Regulation A+ filings based on incorrect financial statements. Since preparation of Regulation A+ financial statements take a considerable amount of time and effort, working with an experienced accountant and auditor are critical to expedite the process.

3. The Offering Statement

Companies will also need to work with experienced securities counsel to draft and prepare the offering statement that will be filed with the SEC and comply with ongoing reporting requirements under Tier 2 offerings. The offering statement has three parts: Part I requires basic issuer information such as the securities being offered, the jurisdiction where the securities will be offered, and the recent sale of securities by the issuer. Part II of the offering statement requires financial statements as well as business, management, and other substantive disclosures. Part III contains exhibits and related documents to be filed based on the company’s determination of pertinent documentation including exhibits that should be filed on a confidential basis with the SEC in order to protect the company’s trade secrets, pricing, etc. Utilizing a team approach, the chief financial officer, auditor and securities counsel can work together to draft the offering statement without interrupting the day-to-day business of the company. The same approach should be used to complete any ongoing reporting obligations under Tier 2.

A private company that is looking to raise capital through a Regulation A+ offering needs to understand the timing and expense associated with such an offering. The earlier you obtain experienced securities counsel and an experienced auditor to help you prepare the offering statement, the quicker you can get your offering statement into the hands of the SEC to be qualified and raising funds. Please contact me by e-mail at or call me direct at 213-341-1385 if you would like further information on Regulation A+ as well as the timing and costs associated with such a transaction.

Thank you for joining us on ClarkTalk! We look forward to seeing you again on this forum. Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered above.





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