Equity Crowdfunding Reaches Milestone with Announcement of New SEC Rules

April 02, 2015

Last week, the Securities and Exchange Commission adopted final rules to update and expand Regulation A, an existing exemption from registration for smaller issuers of securities.  The new Regulation A+ will enable smaller companies to offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure and reporting requirements. Under Regulation A+, there are two tiers of offerings that companies may make that include:

  • Tier 1 – for offerings of securities of up to $20 million in a 12-month period with no more than $6 million in offers by selling security-holders that are affiliates of the issuer; and,
  • Tier 2 – for offerings of securities of up to $50 million in a 12-month period with no more than $15 million in offers by selling security-holders that are affiliates of the issuer.

Both tiers are subject to certain basic securities requirements while tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.

The new rules are a major milestone to many in the crowdfunding industry because it addresses three primary criticisms of Regulation A. First, under Regulation A+, companies can raise up to $50 million dollars – up from $5 million under Regulation A. Second, one of the main factors that made Regulation A offering so rare was the requirement that companies had to register their offerings in every state where they intended to offer securities. Regular A+ includes a preemption of state securities law registration – allowing the SEC review to supplant any state or local requirements/review. This preemption will dramatically reduce the cost of the offering. Finally and most importantly, the new rules allow small businesses to raise capital from not only accredited investors, but also the general public during a small Initial Public Offering.

To protect unaccredited investors, the new rules restricted unaccredited investors from investing more than 10 percent of their additional net worth or annual income in securities. The rules will be effective 60 days after publication in the Federal Register. Read the announcement…

capital, crowdfunding, federal agency