Category Archives: Regulation


AvynoLawLogoIn March 2015 the Securities and Exchange Commission (“SEC”) adopted final rules amending Regulation A, as required by the Jumpstart Our Business Startups Act.

The previous version of Regulation A provided an exemption from registration under the Securities Act of 1933 (the “Securities Act”) for securities offerings of up to $5 million by private companies.  Issuers needing to raise capital seldom chose to proceed under the old Regulation A for a variety of reasons, mainly because of the time and money involved in getting through the SEC review process, given that only a maximum of $5 million could be raised, as well as the cost (and frequent frustration) involved in complying with state blue sky laws in each state in which the securities were offered and sold.  The statistics dramatically underscore the general lack of interest in old Regulation A, and from 2012 to 2014 only 26 Regulation A offerings were qualified by the SEC.

The amendments to Regulation A adopted by the SEC, now colloquially referred to as “Regulation A+,” were specifically designed to address these former shortcomings and to “jump start” Regulation A as a capital raising tool for startups, most notably by raising the maximum amount that could be raised in any 12-month period from $5 million to $50 million and removing many of the impediments of the old regime.

The final rules adopted by the SEC create two tiers of offerings, Tier 1 and Tier 2.  Tier 1 is for offerings up to $20 million in any 12-month period.  Tier 2 is for offerings up to $50 million in any 12-month period.  Issuers conducting offerings of up to $20 million have the option to proceed either under Tier 1 or Tier 2.

The new regulations impose restrictions on the amount (in dollars) of secondary sales by selling security holders that are affiliates of the issuer.  Selling security holders also are limited to no more than 30% of an initial offering (or subsequent Regulation A+ offerings for the first 12 months after the initial offering) for both tiers.  After the first 12 months, this limit goes away for non-affiliates only.

Tier 1 offerings are subject to state securities law requirements.  There is federal preemption of these requirements for Tier 2 offerings if certain conditions are met, meaning that Tier 2 offerings are not subject to review in the states where the offerings are conducted.

Both types of offerings must comply with the same eligibility, disclosure and procedural requirements, but Tier 2 offerings are subject to additional requirements, including audited financial statements, ongoing reporting obligations and a limitation on the amount of investment that may be made by non-accredited investors.

Regulation A+ is available to US and Canadian companies that are not already SEC reporting companies and are not “blank check” companies.  It is not available:

  • for registered investment companies;
  • to an issuer of fractional undivided interests in oil or gas rights, or similar interests in other mineral rights;
  • to an issuer that are disqualified by reason of not having filed the ongoing reports required by Regulation A+ during the two years immediately preceding the filing of a new offering statement;
  • to an issuer that has been subject to an order by the SEC denying, suspending or revoking registration pursuant to Section 12(j) of the Securities Exchange Act of 1934 within the five years prior to the filing of the new offering statement; or
  • is subject to “bad actor” disqualification.

Regulation A+ offerings may be used to sell equity securities, including warrants; debt securities; and securities convertible into or exchangeable into equity.  Asset-backed securities may not be sold under the regulations.

A company conducting a Regulation A+ offering must prepare and file an offering statement electronically with the SEC.  The offering statement is subject to review and comment by the SEC and must be qualified by the SEC prior to any sales.

In the offering statement, an issuer must provide certain basic information about the company similar to Part I of Form S-1, except on a scaled–down level, as well as financial statements for the two most recently completed fiscal year ends.  As noted above, these financial statements must be audited for Tier 2 offerings.

The new rules permit an issuer to submit a draft offering statement to the SEC for non-public review if the issuer has not previously sold securities pursuant to a qualified offering statement.

The rules also permit an issuer to “test the water” with the general public before and after the filing of the offering statement that is not limited by investor type.

A Company conducting a Tier 2 offering must also provide ongoing disclosures following the completion of the offering, including an annual report on Form 1-K within 120 calendar days of the issuer’s fiscal year end, semiannual reports on Form 1-SA within 90 calendar days after the issuer’s second fiscal quarter, and current reports on Form 1-U (similar to Form 8-K) that must be filed within four business days of certain specified events.

Unlike private placements conducted under SEC Regulation D, Regulation A+ offerings are unregistered public offerings and issuers may engage in general solicitation, including solicitation of non-accredited investors.

In addition, securities sold under Regulation A+ are not “restricted securities” under Rule 144.

Moreover, since it is both simpler and cheaper to do a Regulation A+ offering than it is to do a registered public offering such as an IPO, Regulation A+ is widely expected to be highly advantageous to smaller companies, especially start-ups, providing them both easier access to the public market to raise capital and liquidity of their securities in secondary markets.  Not surprisingly, Regulation A+ offerings are currently being referred to as “IPO-lite” transactions by many.

In addition to helping issuers, Regulation A+ also offers an attractive alternative to broker-dealers, allowing them to offer more products to more investors, expand their clientele, foster secondary markets for Regulation A+ securities, help issuers maximize capital-raising potential and mitigate risk through regulatory oversight and liquidity.

There were 34 Regulation A+ offering circulars filed with the SEC in 2015, and 62 have been filed through the first two weeks of April.  Based on the number of offering circulars filed with the SEC since the Regulation A+ regulations became effective, it is already evident that the changes effected by the SEC have resulted in a greatly expanded use of Regulation A, which is only expected to continue.

The foregoing is intended as a high level overview.  If you have any questions or would like more detailed information about Regulation A+, please contact Paul S. Kosacz at Avyno Law, PC, at (818) 654-8847 or

Paul S. Kosacz

6345 Balboa Boulevard
Suite 208, Building­­­­ I
Encino, California  91316

t: 818.654.8847
f: 818.332.4205        

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SEC Adopts Final Equity Crowdfunding Rules

SECLogoThe SEC has now adopted the final rules under which private companies can raise capital in the format described as “crowdfunding”.

The SEC has scheduled an extra long 180 days for implementation in order to permit new portals to comply with the rules.

A quick summary of the rules:

1. Permits a private company to raise up to $1 million in a 12-month period.
2. Offering must be conducted through a broker-dealer or registered funding portal.
3. Issuer must disclose its information on a new Form C.
4. Depending on the size of the offering, historical financial information may be required and may need to be reviewed or audited by independent accountants.
5. Investor’s investment amount will be limited based on the investor’s annual income or net worth.
6. There are issuer post-offering reporting obligations to the SEC.
7. The funding portals, themselves have procedural rules to follow.

For an easy to read summary of the new rules provided by The SEC Law Firm, click here.

To read the SEC press release, click here.

IPOs Using JOBS Act Benefits

L&WHdgUS IPOs are taking advantage of provisions of the JOBS Act, introduced two years ago,

  • to submit a confidential filing, initially, and
  • to “test the waters”.

Latham & Watkins, the law firm, has prepared the attached report to review the use of the JOBS Act provisions during its second year.

Current Reg A Offering Rules

The post, Smaller Company Reg A Offering Rules Get Update, triggered questions about the current rules.

Fortunately, the SEC provided a readable summary (click here) which is a segment of the full SEC page (click here) on financing small businesses.

Deregulation of Small Private Company M&A

A Bill that would largely deregulate the M&A business for smaller private companies (defined as those with EBITDA of $25 million or less) has passed the House and is now before the Senate.

The proposed rule change would enable unregistered advisors to assist the owner of a smaller private company to sell the owner’s business.  

In a coincident development, the SEC has issued a “no action letter” permitting unregistered advisors to assist private companies in M&A transactions.  As is pointed out in the linked post from Faegre Baker Daniels, however, state laws may conflict with this new SEC position (and the pending legislation).

The M&A business for smaller private companies has, in my opinion, always been a bit “the wild west” where unregulated advisers could operate openly for years without penalty.  This proposed rule change, therefore, may not trigger a fundamental change in behavior.  Rather, it may formally permit what is effectively the “status quo”.

What this proposed change would not permit, however, is for an unregistered advisor to assist in an increasingly common engagement structure in which the adviser pursues both capital and M&A options.  Often business owners will pursue parallel deal paths to determine the relative values to them of each alternative before making a decision.  The rules surrounding registration of advisors who are raising capital for smaller private businesses is unchanged under this proposed legislation.

Click here to read a Forbes article for more background.

Click here to read a post on this topic by the law firm, Faegre Baker Daniels.