Going Public With Regulation A+ The Reverse Merger Alternative
Securities Lawyer 101
What Is Regulation A+? On March 25, 2015, Securities and Exchange Commission (the “SEC”)
the adopted
amendments to Regulation A pursuant to the mandate of Section 401(a) of the JOBS Act. The amended rules known
as Amended A+ were adopted to facilitate capital-raising by smaller companies. existing Regulation A.
Regulation
A+
expands
Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a going public transaction. The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital enabling small companies to go public without a reverse merger.
How Does Regulation A+ Impact Going Public? Regulation A+Â is quickly gaining popularity because it enables
private companies to go public without a reverse merger or underwriter. Tier state blue sky laws.
2
of
Regulation
A+
preempts
Smaller private companies were the victims of reverse merger purveyors for years because they had few options available for going public and raising capital. Regulation A+ changes the going public process by allowing companies to obtain seed shareholders so that the company can comply with the rules of the Financial Industry Regulatory(FINRA) for a ticker symbol assignment. This allows the company to go public using a direct public offering/DPO and avoid the risks of reverse merger transactions.
What Disclosures Does Regulation A+ Require? One of the most significant changes from Regulation A+ for going public transactions is that issuers can use Regulation A+’s short form registration statement, to register shares on behalf of selling shareholders. This allows the issuer to more easily locate a sponsoring market maker to file its Form 211 and meet FINRA’s shareholder requirements for a ticker symbol assignment. Regulation A+ provides a middle ground between private and public company status by allowing companies to transition between being private and going public. Regulation A+ direct public offerings are quickly becoming a popular way of going public with out a reverse merger using a direct public offering.
How Can I Plan Ahead For a Regulation A+ Offering? Planning ahead will prevent many common pitfalls that small companies encounter during the capital raising process. Direct public offerings using Regulation A+ involve
specific
disclosures which must be made on Form 1-A. To avoid delays, companies should ensure they can statements required by Regulation A.
provide
the
financial
Form 1-A is reviewed by the Corporation Finance Division of the Securities and Exchange Commission (“SEC”). Each amendment to the Form 1-A will be reviewed by the SEC and the company must respond. The company and its going public attorney will draft these responses and file amendments to the Form 1-A. When the SEC examiners feel the Form 1-A has satisfied all requirements, the SEC will declare the Form 1-A effective.
What Financial Statements Are Required By Regulation A+? Regulation A+ Tier 1 and Tier 2 offerings require the company to provide financial statements for the two most recent fiscal years. An important distinction between Tier 1 and Tier 2 offerings is that Tier 2 companies must provide audited financial statements, while Tier 1 companies may provide unaudited financial statements. U.S. based companies must prepare their financial statements in accordance with U.S. Generally Accepted Accounting Procedures (GAAP), while Canadian companies may prepare their financial statements in accordance with either US GAAP or International Financial Reporting Standards of the International Accounting Standards Board (IASB IFRS).
Do I Need A Transfer Agent For A Regulation A+ Offering? A transfer agent is the custodian of the company’s shareholder records, including purchases, sales, transfers and account balances. After completion of the going public transaction, as the company’s securities trade actively, it is critical for the Company to have efficient transfer agent operations. Setting up transfer agency early, and then issuing and shipping shares to the company’s initial subscribing shareholders is a formality that helps avoid confusion and extra burdens for the company and its shareholders. Choosing a qualified transfer agent that offers a reasonable fee structure and terms is an important yet often overlooked step in the process. Experienced legal counsel will usually have a good sense of the field of service providers and can help you.
How Else Can A Company Plan Ahead For Regulation A+? The SEC and FINRA may examine the company’s website, investor relations activity including press releases and other publicly available information. If either finds improper or misleading statements, they will issue comments asking the company to offer explanations.
If the SEC becomes concerned about misleading disclosures it will not approve the company’s Form 1-A offering circular. If FINRA believes the company is making untrue or misleading statements to condition the market for a company’s securities, it will not approve the Form 211application to initiate quotation or assign a stock ticker symbol. Addressing areas of concern regarding disclosure early with securities counsel is much easier than waiting for an issue to arise.
How Can I obtain More Information? For further information about the rules & regulations that apply to Regulation A+ and Reverse Mergers, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes. Hamilton & Associates | Securities Lawyers Brenda Hamilton, Securities Attorney 101 Plaza Real South, Suite 202 North Boca Raton, Florida 33432 Telephone: (561) 416-8956 Facsimile: (561) 416-2855 www.SecuritiesLawyer101.com