WHAT IS REGULATION A+?
Title IV of the JOBS Act known as Regulation A+, or Reg A+, is part of the evolution of the JOBS Act. It launched in May 2015 after a long wait and great anticipation. Reg A+ refers to an exemption that allows small companies to sell their shares to the general public, making it possible for almost anyone to invest in a business through crowdfunding. It enables startups and crowdfunding platforms to raise money from both accredited and non-accredited investors – for the public to invest in private companies. It also enables companies seeking equity funding to publicly advertise their offerings. It has helped create an effective way for companies to raise capital while also providing investor protection.
The biggest difference between Reg A+ and other exemptions that were previously available for security issuers is the audience. Most of the exemptions that were previously available allowed companies to accept investment from accredited investors only, while Reg A+ allows all investors to participate, acting like a mini-IPO.
HOW DO REGULATION A+ OFFERINGS WORK?
Regulation A+ is broken up into Tiers I and II. Here’s a quick overview of the key differences between the two:
- With Tier I, eligible U.S. and Canada-based companies are able to offer and sell up to $20 million in equity. The previous limitation was $5 million. The company must pass a state coordinated review and their financials are subject to ongoing compliance. There are no limitations to the size of an investment in the company.
- With Tier II, eligible U.S. and Canada-based companies are able to offer and sell up to $50 million in equity. Non-accredited investors have caps on how much they can invest. They can invest a maximum of 10% their annual income/net worth per year, depending on which is greater. Tier II offerings are also required to maintain audited financials and annual reporting requirements.