Regulation A, Business Plan, Major Benefits
Regulation A offering is an exemption which gives small businesses the ability to go public.
The Regulation A Offering is an SEC ruling that allow for simplified registration for companies with offerings of typically $1,500,000 or less. It gives many small businesses the ability to go public with their business and earn capital through the selling of securities.
To qualify the SEC has set several requirements for businesses to qualify for the exemptions. Regulation A Offering exemptions are good for businesses that are legally registered with the government to do business in the United States or Canada. Companies eligible for the exemption must also not be a developmental stage company. They should have a specific business plan with no plans to merge with unidentified businesses. An investment company is also ineligible for Regulation A Offering exemptions.
Being able to sell securities is a great source of funding for any business. It is extremely important however to have additional sources for capital available as well. This could include small business bank loans, bank lines of credit, business credit cards, private investment capital, account receivables factoring, and many other options.
To help you better qualify for financing it is important to have your business in order including having a detailed business plan with information on how much capital you need and what the capital would be used for. Your chances of receiving financing will increase exponentially if you have established business credit scores already in place. These scores work similar to personal credit scores, but they are for your business. Lenders want to see positive credit history before they loan any money to your business. All want to make sure that they will get paid back for their loan.
Section 3(b) of the Securities Act authorizes the SEC to exempt from registration small securities offerings. By this authority, it created Regulation A, an exemption for public offerings not exceeding $5 million in any 12-month period. 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, basically a private placement memorandum for Regulation A. 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 do not need to be audited (such as in the Regulation D sphere);
• 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.
All types of companies which do not report under the Exchange Act may use Regulation A, except “blank check” companies, those with an unspecified business, and investment companies registered or required to be registered under the Investment Company Act of 1940. In most cases, shareholders may use Regulation A to resell up to $1.5 million of securities.
PPM.net can help structure your Regulation A private placement.