The Regulation A amendments adopted by the Securities Exchange Commission on March 25 are being published tomorrow, April 20, in the Federal Register. That means the final rules and form amendments will officially become effective on June 19, 2015 (by rule, 60 days after such publication).
The new Regulation A, referred to widely as Regulation A+, increases the offering cap from $5 million to $50 million with reasonable investor protection safeguards. I previously summarized the regulation here. The main reform features of the new regs are blue sky preemption for Tier II offerings, broader “testing the waters”, scaled disclosure and modified reporting.
In theory, Reg A+ has the potential to provide growth companies with a viable alternative to a traditional S-1 IPO, albeit with a more cost effective runway and scaled disclosure than even the streamlined emerging growth company pathway under JOBS Act Title I. It remains to be seen whether a sufficiently robust small public company ecosystem will develop to support companies that go public through Reg A+.
Importantly, new Reg A+ also reforms the resale rules in a significant respect by eliminating the requirement under old Reg A that issuers must have had net income from continuing operations in at least one of its last two fiscal years for affiliate resales to be permitted. This is a sensible reform inasmuch as many emerging companies experience net losses for several years due to high research and development costs. Absence of net income, by itself, is not a sufficient indicator of enhanced risk, and increasing selling stockholder access to avenues for liquidity will encourage investment in emerging companies.