Blogs

Navigating Regulation A+ Offerings: Considerations for Microcap Firms

Regulation A+ ("Reg A+") provides an intriguing capital-raising pathway for microcap companies as an alternative to a traditional initial public offering (IPO). Here we examine how Reg A+ works, its SEC oversight, benefits and drawbacks for microcap issuers, and considerations during the process.

What is Regulation A+?

Reg A+ refers to an exemption under the Securities Act of 1933 that allows companies to raise up to $75 million annually from public investors while facing reduced compliance burdens compared to a registered public offering. It was expanded under the JOBS Act in 2015 to make capital raising easier for early stage and microcap firms.

Reg A+ acts as a "mini-IPO" alternative, allowing issuers to broadly solicit and sell securities to retail investors following a streamlined SEC review process. Companies utilizing Reg A+ must still file audited annual and unaudited semiannual financial reports ongoing. But compliance costs are typically substantially lower than a full IPO, better suiting microcap firms.

Two Offering Tiers Under Reg A+

There are two offering tiers under Regulation A+:

• - Tier 1: Allows securities offerings of up to $20 million within any 12-month period
• - Tier 2: Allows offerings up to $75 million within any 12-month period

Tier 2 requires more extensive disclosures, ongoing SEC reporting obligations, and limitations on investment by non-accredited investors. But it allows broad solicitation unlike private placement exemptions while still raising ample capital through public markets. The higher offering limit makes Reg A+ a viable "mini-IPO" alternative for microcap firms looking to access greater growth capital than permitted under other exemptions like crowdfunding.

SEC Oversight and Enforcement of Reg A+ Offerings

It is important for microcap companies and their advisors to understand that Regulation A+ offerings receive substantial SEC oversight, both during the qualification process and for ongoing reporting compliance post-offering.

The SEC's Division of Corporation Finance closely reviews Regulation A+ offering statements using a scrutiny similar to full IPO registration filings. Comment letters querying details are common. The SEC aims to validate disclosures adequately inform investors and prevent material misstatements or omissions.

Post-offering, the SEC's Division of Enforcement monitors issuers utilizing Reg A+ to ensure compliance with periodic and current reporting obligations. Failures to file timely reports as required are often swiftly met with enforcement action. But more broadly, Enforcement Division attention extends to any activities potentially breaching antifraud statutes during solicitation or ongoing.

In particular, SEC scrutiny focuses on identifying any material misstatements or omissions made to public investors regarding the microcap issuer's management team, business operations, products, services, markets, financials or other disclosures germane to investment decisions. Reg A+ does not provide immunity from SEC enforcement of securities laws prohibiting fraud and manipulation.

Reg A+ Benefits, Drawbacks and Process Considerations for Microcap Firms

Regulation A+ offers microcap companies a viable path to raise up to $75 million growth capital from public investors while maintaining SEC compliance. But navigating the Reg A+ process successfully requires working with experienced securities counsel familiar with its nuances.

Key benefits over traditional IPOs potentially include faster time frames, lower upfront compliance costs, and ongoing savings through reduced reporting requirements. However, limitations exist too. State blue sky laws still apply absent coordinating state registrations, limiting solicitation scope. And Timberwolves remain subject to 1934 Act reporting post-offering.

During the process, counsel guides through disclosure expectations for Form 1-A offering statements and crafting investment materials balancing positive merits with necessary cautions. Navigating SEC review and comments is also crucial. Ongoing advising on reporting compliance reduces risks of detrimental enforcement action after raising necessary capital.

Regulation A+ provides a balanced alternative for the right microcap firms to raise public growth capital efficiently while maintaining SEC compliance. Contact Lucosky Brookman if your company is considering a Reg A+ offering or needs guidance on SEC reporting obligations. Our attorneys regularly advise clients on securities regulations and navigating the pathways to raising public capital.