Frequently Asked Questions

Companies

Types of Offerings

Regulation A+

In April 2012 the JOBS Act was passed as a way to help spur on the struggling economy. The JOBS Act also created a new opportunity for entrepreneurs to access capital to grow their companies and ideas. Companies are now able to publicly advertise their capital raises. More importantly, on June 19, 2015 Title IV (Regulation A+) of the JOBS Act was put in effect and private companies are now able to raise money from all Americans. Prior to Regulation A+ only accredited investors were allowed to invest in private offerings.

Companies eligible for Regulation A+ meet this criteria:

  • Any US or Canada company
  • Private company

How Much Can Regulation A+ Companies Raise?

  • For a Tier 1 offering, companies can raise up to $20M in a 12 month period.
  • For a Tier 2 offering, companies can raise up to $50M in a 12 month period.

Can the company’s current shareholders sell their shares in an offering?

Yes. But the aggregate amount sold by the shareholders who are “affiliates” may not exceed $15 million in a 12 month period. And for the initial Regulation A+ offering and during the first year following the company’s initial Regulation A+ offering, there is an additional limitation: selling shareholders may not account for more than 30% of the total dollar amount offered in the Regulation A+ offering. The aggregate amount sold by the company and the shareholders may never exceed $50 Million in a 12 month period.

Note – Shareholders who are not affiliates and have held their shares for at least one year will generally be able to sell their shares under SEC Rule 144 without the need for any registration, though there may be some additional hoops to jump through.

Do I need to register the offering with the SEC?

Yes. You will need to file an Offering Statement (Form 1-A) with the SEC, for compliance with SEC rules, similar to a traditional Registration Statement for an IPO. The Regulation A+ securities may not be sold to the public until the Offering Circular has been filed with the SEC. The Offering Statement includes the Offering Circular required to be provided to Investors.

All filings by companies are done on the SEC’s electronic filings system, known as EDGAR.

What type of financial information is included in the filings?

Audited Annual Financial Statements must be provided for the two fiscal years prior to the year of filing. Financial statements must be dated not more than nine months before the date of filing or qualification, with the most recent annual or interim balance sheet not older than nine months. If interim financial statements are required, they must cover a period of at least six months.

Financial statements must be prepared either in accordance with GAAP or PCAOB standards.

What type of non-financial information is required in the filings?

The required information is similar to what would be included in a traditional IPO registration statement, but the level of detail is reduced to scale to smaller companies. This information includes such items as risk factors, dilution, the plan of distribution, selling security holders, if any, use of proceeds, business operations, management’s discussion and analysis of the presented financial information (MD&A), identification of directors and executive officers, compensation information, ownership information, and related party transactions.

Will the company be required to register its offering with any state?

No. A major feature of Regulation A+ is that companies that qualify their securities with the SEC are exempt from state “Blue Sky” laws. However, some states still may require notice filings and states retain jurisdiction to enforce certain rules, including those requiring that offers and sales are not made through misrepresentations or omissions. The federal preemption only applies to Tier 2 offerings.

Who is eligible to audit the financial statements?

Unlike a fully reporting public company, a company’s independent auditor need not be registered with the PCAOB.

Can a company solicit non-binding indications of interest before preparing and filing an offering statement with the SEC?

Before a company is qualified, all material must be file with the SEC. The SEC rules allow a company to “test the waters” to solicit.

Where can I find additional information on equity crowdfunding?

On the SEC website: SEC.gov

Regulation Crowdfunding (CF)

Regulation CF, also known as Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012, provides an exemption from registration for certain crowdfunding transactions. Previously, startup companies were only allowed to raise money through investments of accredited investors, investors with a net worth of 1 million dollars. With this new regulation company’s are able to raise up to $1,070,000 in a 12-month period through accredited and unaccredited investors.

Companies eligible for Regulation CF meet this criteria:

  • Must be incorporated in the US
  • Seeking to raise $1,070,000 or less for the first round
  • Companies may not be an “investment company” as-defined under the Investment Company act if 1940.

How Much Can Regulation CF Companies Raise?

  • A company can raise up to $1,070,000 in a 12 month period.

Do I need to register the offering with the SEC?

Yes. You will need to file a Form C with the SEC. The SEC requires that issuers provide certain information to investors via Form C. Regulation CF securities may not be sold to the public until the Form C is filed with the SEC

All filings by companies are done on the SEC’s electronic filings system, known as EDGAR.

What type of financial information is included in the filings?

Companies are required to provide financial statements prepared in accordance with US GAAP covering the two most recently completed fiscal years (or shorter period since inception). Financial statements more than 18 months old are not permitted. If more than 120 days has passed since the end of the most recently-ended fiscal year, the company will have to produce financial statements for that most recent year, but until that point could use financial statements from the preceding year.

What type of non-financial information is required in the filings?

The required information is similar to what would be included in a traditional IPO registration statement, but the level of detail is reduced to scale to smaller companies. This information includes such items as risk factors, dilution, the plan of distribution, selling security holders, if any, use of proceeds, business operations, management’s discussion and analysis of the presented financial information (MD&A), identification of directors and executive officers, compensation information, ownership information, and related party transactions.

Where can I find additional information on equity crowdfunding?

On the SEC website: SEC.gov