Resource Guide: SEC Regulation A + Plus

FINAL REGULATORY FLEXIBILITY ACT ANALYSIS

This Final Regulatory Flexibility Analysis has been prepared in accordance with the Regulatory Flexibility Act, 5 U.S.C. 603. It relates to the following:
amendments to Rule 157(a), Rules 251 through 263 of Regulation A, Rule 505 of Regulation D, Form 1-A, Form 8-A, Rule 30-1 of the Commission’s organizational rules, Rule 4a-1 under the Trust Indenture
Act, Rule 12g5-1 and Rule 15c2-11 under the Exchange Act, and Item 101 of Regulation S-T;
new Forms 1-K, 1-SA, 1-U, and 1-Z; and

the rescission of Form 2-A.

1080 See Commission Rule 83, 17 CFR 200.83, and Securities Act Rule 406, 17 CFR 230.406.
1081 5 U.S.C. 552. The Commission’s regulations that implement the Freedom of Information Act are at 17 CFR 200.80 et seq.
An Initial Regulatory Flexibility Analysis (IRFA) was prepared in accordance with the Regulatory Flexibility Act and included in the Proposing Release.
Need for the Rules

The rule amendments, new forms, and rescission of Form 2-A are designed to implement the requirements of Section 3(b)(2) of the Securities Act and to make certain conforming changes based on our amendments to Regulation A. Section 3(b)(2) directs the Commission to adopt rules adding a class of securities exempt from the registration requirements of the Securities Act for offerings of up to $50 million of securities within a 12-month period, subject to various additional terms and conditions set forth in
Section 3(b)(2) or as provided for by the Commission as part of the rulemaking process.

Our primary objective is to implement Section 401 of the JOBS Act by expanding and updating Regulation A in a manner that makes public offerings of up to $50 million less costly and more flexible while providing a framework for regulatory oversight to protect investors. In so doing, we have crafted a revision of Regulation A that both promotes small company capital formation and provides for meaningful investor protection. We believe that issuers, particularly small businesses, benefit from having a wide range of capital-raising strategies available to them, and that an expanded and updated Regulation A could serve as a valuable option that augments the exemptions from registration more frequently relied upon, thereby facilitating capital formation for small businesses.
Significant Issues Raised by Public Comments

In the Proposing Release, we requested comment on every aspect of the IRFA, including the number of small entities that would be affected by the proposed
amendments, the existence or nature of the potential impact of the proposals on small entities discussed in the analysis, and how to quantify the impact of the proposed rules. We did not receive any comments specifically addressing the IRFA. We did, however, receive comments from members of the public on matters that could potentially impact small entities. These comments are discussed at length by topic in the corresponding subsections of Section II. above.
While the proposed rules contemplated that small entities would be able to elect to proceed under the requirements of either Tier 1 or Tier 2, as discussed more fully below, an entity considered a small business under our rules would only be required to file ongoing reports under Regulation A if it elected to conduct a Tier 2 offering.1082 The following discussion therefore focuses on the suggestions of commenters, as they relate to the proposed and final requirements for Tier 1 offerings, which is the tier most likely to be relied upon by small entities.1083
Many commenters recommended making changes to proposed rules that, in their view, would make Regulation A a more viable capital raising option for smaller issuers.1084 Some commenters recommended improving the utility of Regulation A for
smaller issuers by preempting state regulation of Tier 1 offerings.1085 Others, however,

1082 The distinction between a Tier 1 offering and Tier 2 offering is discussed in Section II. above.
1083 For a more comprehensive discussion of commenter suggestions as to the proposed rules for both Tier 1 and Tier 2 that could potentially impact small entities, see Section II. above.
1084 Andreessen/Cowen Letter; BDO Letter; Bernard Letter; Campbell Letter; CAQ Letter; Public Startup Co. Letter 1; Deloitte Letter; E&Y Letter; Guzik Letter 1; Heritage Letter; ICBA Letter; KPMG Letter; McGladrey Letter; Milken Institute Letter; Ladd Letter 2; SVB Financial Letter; Verrill Dana Letter 1; WR Hambrecht + Co Letter.
1085 Andreessen/Cowen Letter; Bernard Letter; Campbell Letter; Public Startup Co. Letter 1; Guzik Letter 1; Heritage Letter; Milken Institute Letter; Ladd Letter 2; SVB Financial Letter.
opposed preemption for all Regulation A offerings.1086 Some commenters recommended that we adopt a third tier, either expressly or through fleixble applicability of the proposed tier requirements.1087 Some commenters suggested that raising the offering limit of Tier 1 from $5 million to $10 million or more would make Tier 1 more useful,1088 while others recommended including various forms of ongoing disclosure at a level lower than what was proposed to be required for Tier 2.1089 One commenter suggested
reducing the Tier 1 narrative disclosure obligations, particularly for offerings of $2 million or less, so that such requirements would be more appropriately tailored for smaller issuers.1090 Several commenters made recommendations with respect to the financial statement and auditing requirements in Form 1-A, as they relate to the requirements for Tier 1.1091
The final rules for Regulation A take into account some of the suggestions by commenters on ways to make Tier 1 more useful for small entities. For example, the final rules raise the offering limit of Tier 1 to $20 million. Also, with respect to the offering circular narrative disclosure requirements,1092 we have adopted certain additional scaled disclosure requirements for Tier 1 that are intended to lessen the compliance obligations for smaller issuers.