SEC aids small business investment with new rules

The Securities and Exchange Commission adopted new rules which are intended to improve small business startups by providing access to capital and more choices to investors. The regulations are required under the Jumpstart Our Business Startups Act and update Regulation A, the current registration exemption for small issuers of securities.

Under the 1933 Securities Act, companies must register an offer and sale of securities or rely on a registration exemption. Regulation A, however, exempts unregistered public offerings up to $5 million of securities in any 12-month period. This includes up to $1.5 million of securities offered by a company’s security holders. Regulations A offerings have been used less in recent years compared to other Securities Act exemptions.

The new rules, referred to as Regulation A+, will take effect 60 days after publication in the Federal Register. As required under the Jobs Act, the SEC adopted these rules allowing offerings up to $50 million of securities within a 12-month period. These offerings and selling will be subject to eligibility, disclosure and reporting requirements. Companies conducting these offerings would have to file annual audited financial statements.

Regulation A+ will provide for two tiers of offerings. Tier 1 offerings will cover security offerings up to $20 million in a 12-month period with no more than $6 million in offers by selling security-holders that are the issuer’s affiliates. Tier 2 offerings govern offerings up to $50 million in a 12-month period with no more than $15 million in offers by selling security-holders that are the issuer’s affiliates. Certain security requirements govern both tiers while Tier 2 is governed by additional disclosure and reporting rules.

The new rules will preempt state securities laws, known as Blue Sky Laws, in Tier 2 offerings offered or sold to qualified purchasers. Federal and state registration and qualification requirements will govern Tier 1 offerings. Issuers may also utilize a North American Securities Administrators Association coordinated review program.

Legal assistance can assist Minnesota small business owners utilize federal and state laws intended to assist business expansion and formation and corporate financing. Legal advice can also help business owners with regulatory compliance.

Source: Securities and Exchange Commission, “SEC adopts rules to facilitate smaller companies’ access to capital,” Retrieved March 30, 2015

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