Continuing Disclosure Obligations
Proposed Rules for Continuing Disclosure Obligations
Regulation A currently requires issuers to file a Form 2-A with the Commission to report sales and the termination of sales made under Regulation A every six months after qualification and within 30 calendar days after the termination, completion, or final sale of securities in the offering.568 We proposed to rescind Form 2-A, but to continue to require Regulation A issuers to file with the Commission electronically on EDGAR after the termination or completion of the offering the information generally disclosed in Form 2-A.569 As proposed, issuers conducting Tier 1 offerings would be required to provide this information on Part I of proposed Form 1-Z not later than 30 calendar days
567 See Proposing Release, at Section II.E.
568 See 17 CFR 230.257 (2014); see also 17 CFR 239.91 (Form 2-A).
569 We did not propose to continue to require issuers to disclose the use of proceeds currently disclosed in Form 2-A, as issuers would already have to disclose this information in Part II of proposed Form 1-A and changes in the use of proceeds after qualification not previously disclosed may require issuers to file a post-qualification amendment or offering circular supplement to update such disclosure. See discussion of continuous or delayed offerings and offering circular supplements in Section II.C.4. above.
after termination or completion of the offering,570 while issuers conducting Tier 2 offerings have the flexibility to provide this information on either Part I of Form 1-Z at the time of filing an exit report or proposed Form 1-K as part of their annual report, whichever is filed first.571
As proposed, Tier 2 issuers would be subject to a Regulation A ongoing reporting regime that would require, in addition to annual reports and summary information about a recently completed offering, semiannual reports on proposed Form 1-SA, current event reports on proposed Form 1-U, and, when eligible and electing to do so, notice to the Commission of the suspension of ongoing reporting obligations on Part II of proposed Form 1-Z. All of these reports would be filed electronically on EDGAR.
Comments on the Proposed Rules
We received both general comments and specific comments on the proposed forms. These comments are discussed in turn below.
General Comments
Commenters generally approved of the continuing disclosure obligations for Tier 2 offerings.572 One commenter noted favorably that professional fees, other costs, and the time burden associated with the proposed rules would likely be substantially lower for Regulation A issuers than for issuers subject to Exchange Act reporting.573
570 Proposed Form 1-Z (exit report) is discussed in Section II.E.4. below.
571 Proposed Rule 257(a), (b)(1).
572 ABA BLS Letter; Campbell Letter; Canaccord Letter; CFA Letter; McCarter & English Letter; NASAA Letter 2; Letter from Jason Coombs, Co-Founder and CEO, Public Startup Company, Inc., March 26, 2014 (“Public Startup Co. Letter 5”); US Alliance Corp. Letter; WDFI Letter.
573 US Alliance Corp. Letter.
Another commenter remarked that the proposed ongoing reporting regime strikes an appropriate balance between the benefits of disclosure and costs to issuers.574
Other commenters expressed general support, but also recommended changes to the semiannual reporting requirement or the content of Form 1-U.575 One commenter supported the general policy that it should not be easier or harder to exit the Regulation A reporting system than it would be to exit the Exchange Act reporting system.576 Several commenters recommended including an ongoing disclosure requirement for Tier 1 issuers, including disclosure at a level lower than what was proposed for Tier 2,577 ongoing disclosure with yearly audited financials,578 or some unspecified continuous disclosure obligation.579 Another commenter recommended extending continuing disclosure obligations into Tier 1, but further suggested that the Commission replace any
requirement to provide audited financial statements with an affidavit from management attesting to the accuracy of the financial statements.580 A few commenters generally recommended reducing the disclosure burden on Tier 2 issuers.581 One of these commenters recommended making continuing disclosure requirements contingent upon
factors other than offering size, such as whether the issuer has taken steps to foster a
574 McCarter & English Letter.
575 ABA BLS Letter; Canaccord Letter; NASAA Letter 2; WDFI Letter.
576 ABA BLS Letter (raising the issue particularly with respect to “very small issuers” under Tier 2).
577 Guzik Letter 1 (suggesting that Tier 1 ongoing disclosure requirements could parallel Tier 2’s requirements but without the requirement for semiannual reports).
578 Ladd Letter 2.
579 SVB Financial Letter.
580 Public Startup Co. Letter 5.
581 Heritage Letter; IPA Letter (providing estimated costs of compliance for offering statement and periodic reports).
market in its securities.582 This commenter also recommended allowing issuers to either avoid ongoing reporting or to file only financial statements and a management letter regarding operations and results if, shortly after commencing the offering upon qualification, issuers have less than 300 record holders. Another commenter recommended allowing Canadian companies to rely on Rule 12g3-2(b) to avoid having to file ongoing reports under Regulation A.583 As an alternative, this commenter recommended allowing Canadian companies to furnish reports under cover of Form 6-K rather than using the Regulation A reports. One commenter recommended that, to the extent that the final rules allow foreign private issuers to use Regulation A, such issuers should be permitted to follow the ongoing reporting rules applicable to them in the
Exchange Act context in lieu of Regulation A ongoing reporting requirements,584 while another commenter specifically opposed this suggestion.585 Another commenter recommended requiring officers, directors, and controlling shareholders of companies
that offer securities under Regulation A to make ongoing disclosure of transactions in company securities, similar to reporting on Forms 3, 4, and 5 and Schedules 13D, 13G, and 13F in the registered context.586
Comments on Form 1-K