Going Public With Regulation A+ The Reverse Merger Alternative

Securities Lawyer 101

What Is Regulation A+?

On March 25, 2015, the Securities and Exchange Commission (the “SEC”) 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. Regulation A+ expands existing Regulation A.  

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 and go public without a reverse merger.

How Does Regulation A+ Impact Going Public?

Smaller private companies have had limited options when seeking to raise capital and go public. Because of this many companies turned to reverse merger transactions.

Regulation A+ provides an efficient method for a private company to go public without a reverse merger or underwriter.

Tier 2 of Regulation A+ also preempts state blue sky laws.

Regulation A+ changes the going public process by allowing companies to obtain seed shareholders so that the company can comply with the rules required by the Financial Industry Regulatory( FINRA) for a stock ticker symbol. This simplifies the going public process because the company can conduct a Regulation A+ direct public offering and then request a market maker file its Form 211 to seek a ticker symbol.

What Disclosures Does Regulation A+ Require?

Regulation A+ provides a middle ground between private and public company status by allowing companies to transition between being private and being an SEC reporting company.

One of the most significant changes from Regulation A+ for going public transactions is that a company can use Regulation A+’s short form registration statement, to register shares on its own behalf and on behalf of selling shareholders.

Form 1-A requires disclosure of its business, officer and director biographical information, material risks of the offering, uses of offering proceeds, management’s discussion and analysis, officer and director compensation, beneficial ownership information, related party transaction, and the security being offered.

What Financial Statements Are Required By 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).

How Can A Company Plan 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 provide the financial statements required by Regulation A.

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.

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. An experienced securities attorney 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 Lawyer 101Brenda Hamilton, Securities Attorney101 Plaza Real South, Suite 202 NorthBoca Raton, Florida 33432Telephone: (561) 416-8956Facsimile: (561) 416-2855www.SecuritiesLawyer101.com

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