The SEC recently adopted final rules implementing significant changes to securities offerings done under Regulation A. Because of the greatly expanded scope of the offerings, they are referred to colloquially as Regulation A+ offerings. The SEC announced the final rules with a press release and fact sheet.
Rather than duplicating the thorough work done (and to be done) by large firms with their comprehensive summaries of the new rules – here’s one from Morrison & Foerster – I thought it would be helpful to step back and explain, at a 30,000 foot level, how Regulation A+ offerings fit into the overall scheme of securities offerings. There seems to be much confusion of terminology in the wake of the gradual implementation of the provisions of the JOBS Act. In particular, the buzzy term “crowdfunding” is used indiscriminately among different types of offerings. The following is a non-comprehensive list of common types of securities offerings and how they differ from one another in the most basic sense:
Rule 506(b)/Section 4(a)(2) – A truly private offering – no general solicitation or advertising permitted – with no dollar limitation on the amount offered.
Rule 506(c) (Title II of JOBS Act) – Even though this is part of Regulation D, a safe harbor for private offerings, 506(c) offerings may be made by general solicitation and advertising, as long as they are made to only accredited investors. There is also no dollar limitation.
Title III of JOBS Act – This exemption, which has not yet been implemented by the SEC, is the one that’s really supposed to be called “crowdfunding.” If and when it becomes effective, it will permit public sales (via a regulated internet portal) to all investors (whether or not accredited) of up to $1 million in securities in a 12 month period.
Regulation A+ – These offerings, which may be done by general solicitation and advertising, are intended to provide most of the benefits of true public offerings (including the fact that investors receive non-restricted shares), but because of the offering amount thresholds ($20 million or $50 million, depending on the tier), the compliance burden is lessened on the issuers. So, we’re just talking about small public offerings – not necessarily “internet” offerings or crowdfunding, except in the broad sense that they can be publicly advertised.
Public Offerings – These have been available, via registration statements filed with the SEC, since 1933, and the term “crowdfunding” used in a broad sense could always have been used to describe these offerings, which are intended to be broadly distributed and advertised to the public. There is no dollar limitation.