Public companies will soon be able to use Reg A+

05.31.18

When President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Growth Act”) in late May, most of the attention was focused on the benefits to regional banks as a result of the easing of certain restrictions previously imposed by Dodd-Frank and the Consumer Protection Act of 2010.

However, there is also a section dedicated to a significant change in Regulation A of the Securities Act of 1933, as amended, that affects companies that already file public, periodic reports with the SEC.

That section, Section 508 of the Growth Act, entitled “Improving Access to Capital” has two key provisions:

• Section 508(1) directs the Securities and Exchange Commission (the “SEC”) to amend Regulation A to allow reporting companies to use Regulation A.
• Section 508(2) directs the SEC to amend Regulation A to allow reporting companies to satisfy their reporting obligations under Regulation A through their pre-existing reporting obligations.

In short, once the SEC carries out Congress’ mandate in the Growth Act, public companies will be able to use Regulation A to raise capital. Previously, only private companies and non-reporting issuers could use Regulation A, although a bill in Congress, The Regulation A+ Improvement Act (HR 4263), would increase the cap to $75 million.

The benefits of Regulation A, even to an existing public company, are numerous. Some examples: companies using Regulation A can “test the waters” with the public prior to launching an offer in earnest, the SEC generally reviews Regulation A filings faster than other public company filings, and in the case of Tier 2 offerings, Regulation A preempts state blue sky registrations.

Regulation A does have some downsides, chiefly that an issuer can only raise up to $50 million in a 12-month period using Regulation A.

As a result, while public companies that are eligible to use Form S-3 for securities offerings will likely still find that form more expeditious, for companies that are not S-3 eligible (i.e., smaller public companies with a market capitalization under $75 million, companies that have been public less than a year and companies that have missed a filing deadline required for Form S-3 eligibility), this change to Regulation A will represent an attractive option for raising capital from the public.