Jobs creation and wages are in the spotlight again by voter demand this presidential election year and receiving attention from both Republican and Democratic parties. This begs the question whether an improved version of Regulation A under the JOBs Act of 2012 offers a practical solution for smaller companies to access capital and create new jobs. More than one year ago, on June 19, 2015, the U.S. Securities and Exchange Commission adopted an amendment to existing Regulation A allowing companies to raise up to $50 million in capital in a 12-month period from both accredited and (in some circumstances) non-accredited investors in an exempt offering. Many have designated this private placement exemption, (nicknamed Regulation A+ or just Reg A+) as a mini-IPO given the required SEC review process. Entrepreneurs have been hopeful the exemption will provide a “miracle solution” for quickly raising significant capital from the public and without the expense, complexity and detailed disclosure requirements of a traditional IPO.
The JOBS ACT of 2012
As background, the JOBs Act bill was passed and signed into law with strong bipartisan support to increase U.S. job creation and economic growth by easing access to capital markets for small business. Later, the 2015 rules were adopted by the SEC, as directed under the JOBS Act, to resuscitate a little-used offering exemption, the use of which was limited by state law roadblocks. A review of SEC filings shows Regulation A+ started off slowly but seems to have picked up some momentum. A company in the United States or Canada not already subject to on-going reporting requirements of the Securities Exchange Act of 1934 or that has not failed to file reports required by Regulation A over the last two years of the company’s existence may avail itself of Regulation A+. A company is ineligible if it:
- Is a development stage company with no business plan or purpose
- Has plans to engage in a merger or acquisition
- Has employees, affiliates, placement agents or underwriters who are considered “Bad Actors”
- Is a business development company or required to be registered under the Investment Company Act of 1940,
- Has a registration statement that has been denied, suspended, or revoked within the last five years, or
- Is an issuer of fractional interests in oil, gas or mineral rights.