Regulation A, promulgated under Section 3(b) of the Securities Act of 1933, is an exemption for public offerings not exceeding $5 million in any 12-month period. Although it is technically an exempt offering, practitioners really refer to it as a mini registration. If you choose to rely on this exemption, your company must file an offering statement, consisting of a notification, offering circular, and exhibits, with the SEC for review.
Regulation A offerings share many characteristics with registered offerings. For example, you must provide purchasers with an offering circular that is similar in content to a prospectus. Like registered offerings, the securities can be offered publicly and are not “restricted,” meaning they are freely tradeable in the secondary market after the offering. The principal advantages of Regulation A offerings, as opposed to full registration, are:
• The financial statements are simpler and don’t need to be audited;
• There are no Exchange Act reporting obligations after the offering unless the company has more than $10 million in total assets and more than 500 shareholders;
• Companies may choose among three formats to prepare the offering circular, one of which is a simplified question-and-answer document; and
• You may “test the waters” to determine if there is adequate interest in your securities before going through the expense of filing with the SEC.
If you “test the waters,” you can use general solicitation and advertising prior to filing an offering statement with the SEC, giving you the advantage of determining whether there is enough market interest in your securities before you incur the full range of legal, accounting, and other costs associated with filing an offering statement. You may not, however, solicit or accept money until the SEC staff completes its review of the filed offering statement and you deliver prescribed offering materials to investors.