SEC Proposes Rules to Increase Access to Capital for Smaller Companies

Corporate / Financial Institutions Alert

January 31, 2014
Corporate / Financial Institutions Alert

Section 401 of the JOBS Act directed the SEC to adopt rules to exempt the following class of securities from the provisions of the Securities Act of 1933 (the “1933 Act”):

On December 18, 2013, the SEC proposed rules intended to implement Section 401. Set forth below is a brief overview of the proposed rules.

A more detailed discussion of these rules may be found here.

Regulation A

A company selling securities to potential investors must register the offering under the 1993 Act – unless it can rely on an exemption.

Regulation A is a longstanding, little used, exemption which allows companies to sell securities and avoid complying with the 1993 Act registration rules.  Reg A permits unregistered public offerings of up to $5 million of securities in a 12-month period, including no more than $1.5 million of securities offered by security-holders of the company.

Currently, companies relying on Reg A must submit an offering statement to the SEC for review.  Reg A tailors those requirements for smaller companies and does not mandate ongoing reporting after the offering is completed.  In addition, such offerings also are subject to state-level registration and qualification requirements. 


The SEC’s proposed rules would expand and revise Reg A and create two tiers of Reg A offerings:

For offerings up to $5 million, a company could elect whether to proceed under Tier 1 or 2.

Basic Requirements

Whether relying on Tier 1 or Tier 2, a company would be subject to basic requirements, including ones addressing issuer eligibility and disclosure based on the existing provisions of Reg A. The regulation would also be updated to, among other things:

Additional Tier 2 Requirements

A Tier 2 offering would also be subject to the following requirements:


As currently is the case, the revised Reg A would be available to companies organized in and with their principal place of business in the United States or Canada.

The Reg A exemption would not be available to companies that:

Preemption of Blue Sky Law

Currently, Reg A offerings are subject to registration and qualification requirements in the states where the offering is conducted unless a state-level exemption is available. 

Under the proposed rules, state securities law requirements would be preempted for Tier 2 offerings.

For further information on this issue, please contact Tim Sullivan, Mike Morehead or your regular Hinshaw attorney.

Tax advice disclosure: To ensure compliance with the Internal Service Regulations governing the issuance of advise on Federal Tax issues, we advise you that any tax advice in this communication (and any attachments) is not written with the intent that it be used, and cannot be used, to avoid penalties that may be imposed under the Internal Revenue Code.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.