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
Two Tiers
Theoretically, there are two “tiers” under Regulation A:
| Tier One | Tier Two | |
| Amount Per Year | $20 million | $50 million |
| Non-Accredited Allowed | Yes | Yes |
| Limits on Investment | None | For non-accrediteds, 10% of income or net worth, whichever is greater, per offering. |
| Audited Financials | No | Yes |
| Registration with SEC | Yes | Yes |
| Registration with State | Yes | No |
| Excluded from Exchange Act Limits | Yes | Yes |
| Shares Freely Tradeable | Yes | Yes |
| Post-Offering Reporting | No | 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)
Additional Resources
Questions? Let me know.