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What Is Reg A+?

What Is Reg A+?

Prior to 2015, if a business wanted to raise money, their options were rather limited. The most established avenues—doing an initial public offering and raising private capital—were only readily available to the most mature companies and accredited investors.

But that changed with the enaction of the JOBS Act. Specifically, Title IV, known as Regulation A+. Reg A+, as it’s more commonly known, is essentially a “Mini-IPO,” and has opened the dam for small-cap U.S. and Canadian companies who want to raise capital and investors who want access to pre-IPO companies. Here’s how it works.

The Benefits of Reg A+

In a Reg A+ offering, a company raises money by creating a new class of stock that can be bought and sold on a secondary market (such as on a national exchange or the OTC Markets) by the general public. This offering can also be combined with venture capital, allowing the company to create an even larger funding round.

A key part of the Reg A+ process is the ability for companies to “test the waters.” This process allows them to confidentially submit an offering circular to the SEC while also gauging potential investor interest to see if there’s enough public interest to justify the offering.

There are two tiers of Reg A+ offerings.

Tier 1

The first, Tier 1 offering, allows for companies to have a public offering of up to $20 million in a 12-month period, no more than $6 million of which can come from affiliates of the company issuing shares. These offerings are subject to both federal and state requirements, and there is no limit on how much any one investor can invest.

Companies doing a Tier 1 Reg A+ offering have to disclose and submit their financials for review, but do not have to continuously report them once the offering is complete.

Tier 2

Tier 2 Reg A+ offerings are slightly more stringent. They allow a company to raise up to $50 million in a 12-month period, no more than $15 million of which can come from affiliates of the company.

While Tier 2 offerings are only subject to federal review, they do require additional ongoing financial reporting requirements such as audited financials and annual and semi-annual reporting. Also, no one investor or group of investors can invest more than 10 percent of their annual revenue or net worth in a Tier 2 offering.

Who Can File for a Reg A+ Offering?

The Reg A+ process is less onerous and more cost-effective than a traditional initial public offering. This makes it an appealing middle ground for companies who want to raise money but don’t necessarily want to take on the cost and complexity associated with an IPO.

Initially, Reg A+ offerings were only available to non-SEC reporting companies. But in 2017, a provision was added allowing for any SEC-reporting company to also raise money via an online offering under Reg A+. This has opened the process up even further, according to Jason Paltrowitz, Director and EVP of Corporate Services at OTC Markets Group.

“Recent amendments to Reg. A + not only lower the barriers to entry for small-cap companies seeking public offerings, but also allow added flexibility when structuring transactions–bridging the gap that exists between private and public offerings, and thus reducing the cost and complexity of being public,” he said.

OTC Markets is a content partner of Benzinga


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