Final Rules
We are adopting the proposed amendments to Regulation A with modifications to the Tier 1 offering limitation and the secondary sales offering limitation. We discuss these amendments in detail below. We are also making a technical change to clarify the description of how compliance with the offering limitations is calculated in
Rule 251(a).87
Tier 1
As discussed more fully in the “Additional Considerations for Smaller Offerings” section below, we are making changes to the proposed rules in response to comments and to increase the utility of Tier 1 of the Regulation A exemption.88 Several commenters89 and a report on the impact of state securities law requirements on offerings conducted under Regulation A by the U.S Government Accountability Office (GAO), as required by Section 402 of the JOBS Act,90 highlighted the $5 million offering limitation in existing Regulation A as one of the main factors limiting the utility of the exemption. In certain circumstances, fixed costs associated with conducting Regulation A offerings, such as legal and accounting fees, may serve as a disincentive to use the exemption for lower offering amounts. We are therefore increasing the offering limitation in the final rules for
87 The proposed rules used the phrase “aggregate offering price for all securities sold” when discussing the gross proceeds resulting from prior or anticipated sales of securities under Regulation A. We have clarified Rule 257(a)(1) to define as “aggregate sales” gross proceeds within the prior 12 month time frame contemplated by Regulation A. We have also made conforming changes elsewhere in the final rules and forms.
88 See Section II.I. below.
89 See, e.g., Guzik Letter 1; ICBA Letter; Public Startup Co. Letter 1.
90 Factors that May Affect Trends in Regulation A Offerings, GAO-12-839 (July 2012) (the “GAO Report”) (available at: http://www.gao.gov/assets/600/592113.pdf). The GAO Report concludes that it is unclear whether increasing the Regulation A offering ceiling from $5 million to $50 million will improve the utility of the exemption.
Tier 1 offerings in a 12-month period from the proposed $5 million limitation to
$20 million.91 We believe that raising the offering limitation for Tier 1 offerings, in addition to other changes discussed in Section II.I. below, will increase the utility of the exemption for smaller issuers by providing them with additional options for capital formation and potentially increasing the proceeds received by the issuer. Consistent with the proportionate limitation on secondary sales in the proposed rules, we are also increasing the limitation on secondary sales in Tier 1 offerings in a 12-month period from the proposed $1.5 million limitation to $6 million.