366 See Instruction 5 to Item 6 (Use of Proceeds) of Part II of Form 1-A.
For clarity, we are moving the requirements to furnish certain supplemental information found in Item 7 (Business Description) of Part II to Form 1-A to General Instruction IV (Supplemental Information) to Form 1-A, where similar requirements are found. We believe that providing these instructions in one place will help issuers understand and comply with the process for furnishing supplemental information to the Commission. The process for furnishing supplemental information to the Commission
pursuant to Form 1-A is similar to the treatment of such information in registered offerings.367 Additionally, since we believe it is important for the Commission to be aware of the existence—rather than the non-existence—of such reports, the final rules no longer require an issuer to inform the Commission if no such report has been prepared.
Item 7 is further revised to clarify that issuers must only disclose distinctive or special characteristics of the issuer’s operation or industry that are reasonably likely to have a material impact on its future financial performance.368
The final rules also clarify in Item 5 (Plan of Distribution and Selling Securityholders) the calculation of selling securityholder ownership prior to an offering, which we believe will facilitate compliance with, and calculations pursuant to, this requirement. Additionally, in order to avoid potential confusion as to the scope of
Items 11 and 13 to Part II of Form 1-A, the final rules make clear that issuers are required
367 In this regard, we have also clarified in General Instruction IV that supplemental information provided to the Commission may be returned in certain circumstances and will be handled by the Commission in a similar manner to supplemental information provided in connection with registered offerings.
368 The language in proposed Item 7 to Part II of Form 1-A indicated that issuers had to disclose characteristics that “may” have a material impact on its future financial performance. We believe this clarifying change in the final rules will help facilitate compliance by smaller issuers.
to provide disclosure for “executive officers” rather than “officers.”369 Contrary to the suggestion of one commenter,370 we do not believe that requiring disclosure regarding the
existence of a code of ethics and corporate governance principles should be a required disclosure item for the types of issuers likely to conduct Regulation A offerings. While nothing in Part II of Form 1-A would prevent an issuer from providing more disclosure than is otherwise required in the form itself, we do not believe it would be appropriate to mandate this type of disclosure for all issuers because we anticipate that issuers of Regulation A securities will generally be smaller companies with less complex
organizational structures.371 We further believe that the disclosure requirements of Part
II of Form 1-A will provide investors with the information they need to adequately evaluate an issuer’s business and securities.
As proposed, the final rules permit issuers to incorporate by reference into Part II of Form 1-A certain items previously submitted or filed on EDGAR. In a change from the proposed rules, issuers will be permitted to incorporate by reference any documents publicly submitted or filed on EDGAR, as opposed to being limited to documents submitted or filed pursuant to Regulation A. We believe that this change will continue to facilitate the provision of required information to investors, while taking a consistent approach to information previously provided to the Commission and publicly available on EDGAR. Issuers following the Offering Circular disclosure model will be permitted to incorporate by reference into Items 2 through 14; issuers following the narrative
369 The language in proposed Items 11 and 13 to Part II of Form 1-A indicated that issuers had to disclose information regarding directors and officers. We believe the clarifying language will help smaller issuers comply with the final rules.
370 Ladd Letter 2 (referring to PCAOB AU 325 and 9325).
371 See fn. 93 above and Section III.C.3. below.
disclosure in Part I of Form S-1 will be permitted to incorporate by reference into Items 3 through 11 (other than Item 11(e)) of Part I of Form S-1; issuers following the narrative disclosure in Part I of Form S-11 will be permitted to incorporate by reference into
Items 3 through 26, Item 28, and Item 30 of Part I of Form S-11.372 The final rules
require issuers to describe the information incorporated by reference, and include a separate hyperlink to the relevant document on EDGAR, which need not remain active after the filing of the related offering statement. Additionally, Form 1-A encourages issuers to cross-reference items within the form, where applicable.373 Further, in order to avoid incorporation by reference to stale information without requiring the latest version of the document to be filed, Form 1-A indicates that, if any substantive modification has occurred in the text of any document incorporated by reference since such document was filed, the issuer must file with the reference a statement containing the text and date of such modification.374