On October 16th, I’m going to be talking about Regulation A at the 5th Annual Global Crowdfunding Convention in Las Vegas, with Miss Nevada as my co-presenter (of course). I prepared this summary-of-a-summary for the event. For more in-depth information, here’s my Regulation A+ Primer. – MARK
The JOBS Act created three flavors of Crowdfunding:
- Title II Crowdfunding, which allows issuers to raise an unlimited amount of money from an unlimited number of investors using unlimited advertising – but is limited to accredited investors.
- Title III Crowdfunding, which allows issuers to raise up to $1 million per year from anyone, including non-accredited investors.
- Title IV Crowdfunding, which modified the old Regulation A and is sometimes referred to as Regulation A+.
Quick Summary of Regulation A
- Raise up to $50 million per year for each issuer
- Raise money from both accredited and non-accredited investors
- Register with the SEC
- Takes about five months, start to finish
- No State-level registration
- Shares freely tradeable from day one
- Sales by existing shareholders
- Regulation A shareholders not counted toward Exchange Act limits for full reporting
- Mini-IPO, but with much lower cost
Theoretically, there are two “tiers” under Regulation A:
|Tier One||Tier Two|
|Amount Per Year||$20 million||$50 million|
|Limits on Investment||None||For non-accrediteds, 10% of income or net worth, whichever is greater, per offering.|
|Registration with SEC||Yes||Yes|
|Registration with State||Yes||No|
|Excluded from Exchange Act Limits||Yes||Yes|
|Shares Freely Tradeable||Yes||Yes|
|Testing the Waters||Yes||Yes|
|Online Distribution Allowed||Yes||Yes|
|Bad Actor Limits||Yes||Yes|
Because of the exemption from State registration, most companies will choose Tier Two.
Companies That Cannot Use Regulation A
|Investment Companies||Companies that own stock or other securities in other companies.|
|Foreign Companies||Issuers must be organized and have their principal place of business in the U.S. or Canada.|
|Oil and Gas Companies||Can’t sell fractional undivided interests in oil and gas rights, or a similar interest in other mineral rights.|
|Public Companies||Can’t be a publicly-reporting company.|
|Companies Selling Asset-Backed Securities||For example, interests in a pool of credit card debt.|
Where Regulation A Makes the Most Sense
- Pools of high-quality real estate assets, especially REITs
- High quality assets in inefficient markets
- Sexy companies (companies with high social-media followers or potential)
Questions? Let me know.