Market Overview

The SEC Is Paving The Way For Small Investors

The SEC Is Paving The Way For Small Investors

If the first images the letters S-E-C and the phrase "blue sky" bring to mind are members of the top football conference playing under ideal weather conditions, read on.

On Wednesday, the other SEC (U.S. Securities and Exchange Commission), issued a press release containing an update on Regulation A.

The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act, and these modifications are sometimes referred to as "Regulation A+."

Here are a few key points that smaller companies and individual investors need to know.

Related Link: SEC Unanimously Approves Regulation A+ Rules

Crowdfunding – Spoiler Alert

Smaller Investors Welcome: The new rules now allow smaller (unaccredited) investors, to invest up to 10 percent of the greater of either annual income or net-worth (at fiscal year-end), in qualifying Tier-2 investments.

More Inclusive Tier 2 Investments: Tier 2 investments, meeting certain conditions, may include: "equity securities, debt securities and debt securities convertible or exchangeable into equity interests, including any guarantees of such securities."

Some Exclusions Apply: The new rules specifically exclude investments in: oil and gas or other mineral rights, and asset backed securities.

North America-Limited: Only companies domiciled in the U.S. or Canada can take advantage of the new rules.

Related Link: Pot Startup Crowdfunding Its Legal Fees

SEC – Background

  • "Under the Securities Act of 1933, when a company offers or sells securities to potential investors, it must either register the offer and sale or rely on an exemption from registration.
  • "Regulation A is a longstanding exemption from registration that permits unregistered public offerings of up to $5 million of securities in any 12-month period, including no more than $1.5 million of securities offered by security-holders of the company."


The main intent of Title IV of the Jumpstart Our Business Act was to make it easier for smaller companies to raise equity, while at the same time providing protections for investors.

SEC – Tier 1 & Tier 2

  • Tier 1, which would consist of securities offerings of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer.
  • Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.

Blue Sky Law – Preemption

  • "In light of the total package of investor protections included in amended Regulation A, the rules provide for the preemption of state securities law registration and qualification requirements for securities offered or sold to 'qualified purchasers,' defined to be any person to whom securities are offered or sold under a Tier 2 offering."
  • While it may seem a bit counter-intuitive that smaller Tier 1 offerings are not made available to unaccredited investors, rule makers felt that "small, more localized offerings" should still be regulated by the states, under Blue Sky.

Related Link: Virginia Company To Lead Nation In Using Revolutionary Regulation A+

Rule Highlights – Companies

  • U.S. and Canadian companies must have a share float of less than $75 million; or revenues of $50 million or less to qualify under the new rules.
  • Companies that outgrow the share float and/or revenue threshold will have a two-year window to comply with applicable SEC rules.
  • Companies offering securities less than $20 million may elect to file under either Tier 1 or Tier 2, which mandates a higher level of reporting requirements: annually, semi-annually and current event reports.

Time Frame

The new rules are set to go into effect 60 days after publication.

Image credit: WPPilot, Wikimedia

Posted-In: Jumpstart Our Business Startups Act SECNews Education Small Cap Crowdsourcing Legal General Best of Benzinga


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