Dec 20, 2013
From the Financial Reporting View
As required by the Jumpstart Our Business Startups (JOBS) Act, the SEC recently proposed rules to update and expand the Regulation A offering exemption by creating two tiers of Regulation A offerings:
- Tier 1, which would consist of offerings already covered by Regulation A – namely securities offerings of up to $5 million in a 12-month period, including up to $1.5 million for the account of selling security-holders; and
- Tier 2, which would consist of securities offerings of up to $50 million in a 12-month period, including up to $15 million for the account of selling security-holders.
The proposed rules also include updates to Regulation A to:
- Permit companies to submit draft offering statements for nonpublic SEC review before filing;
- Permit the use of testing the waters solicitation materials before and after filing the offering statement; and
- Modernize the qualification, communications, and offering process in Regulation A to be consistent with the Securities Act registration process, including requiring electronic filing of offering materials.
In addition to the basic requirements already included in Regulation A, for companies conducting Tier 2 offerings:
- Investors would be limited to purchasing no more than 10% of the greater of the investor’s annual income or net worth;
- The financial statements included in the offering circular would be required to be audited; and
- The company would be required to file annual and semiannual ongoing reports and current event updates that are similar to the requirements for public company reporting.
The comment period ends 60 days after the proposal is published in the Federal Register.