SEC Adopts Rules to Facilitate Smaller Companies' Access to Capital
Corporate / Financial Institutions Alert
The SEC yesterday adopted final rules to update and expand Regulation A, an existing exemption from registration for smaller issuers of securities. The rules are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act.
The rules were originally proposed in December of 2013. A copy of the Hinshaw client alert discussing the proposed rules may be found at http://www.hinshawlaw.com/newsroom-publications-alerts-566.html.
The final rules provide for two tiers of offerings:
- Tier 1, for offerings of securities 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; and
- Tier 2, for offerings of securities 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.
Both Tiers are subject to certain basic requirements. In addition, Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.
State securities law registration and qualification requirements are pre-empted for securities offered or sold in Tier 2 offerings to "qualified purchasers".
Tier 1 offerings are subject to federal and state registration and qualification requirements. The North American Securities Administrators Association (NASAA) has adopted a coordinated review program for such offerings.
The rules should be effective in late May or early June.
We will provide a more detailed analysis once the final rules have been published by the SEC.
Tax advice disclosure: To ensure compliance with the Internal Service Regulations governing the issuance of advice 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 & Culberston 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.