New SEC crowdfunding regulations will offer 2 new ways to raise capital via Internet offerings.
On March 25, 2015, the SEC issued final regulations to implement Title IV of the JOBS Act. The regulations significantly expand the ability of companies to raise capital over the Internet. The regulations go into effect 60 days from publication in the Federal Register (they have not appeared in the Federal Register as of the date of this Alert). Until the effective date, investment crowdfunding via the Internet can only target accredited investors under Title II of the JOBS Act. The new regulations offer companies two different ways to undertake an Internet investment offering to all investors, both accredited and non-accredited: Tier 1 (which basically carries forward the existing Regulation A but with a higher cap on amounts raised annually) and Tier 2 (what is being referred to as Regulation A+ due to the higher amount which can be raised in a 12 month period).
Here's a top-line summary of the more than 400 pages of regulations.
In both a Tier 1 and a Tier 2 offering, "testing the water" offering materials, with required notices affixed, can be used prior to filing an offering for qualification by the SEC; an offering statement must be filed electronically with the SEC for qualification (review and approval by the SEC), and sales cannot be made prior to qualification. If an issuer has been in existence for more than a year, audited financials must be included in the offering materials. Securities to be registered include common and/or preferred securities, debt, and convertible securities (including warrants). Asset-backed securities cannot use a Regulation A offering. Once sold, securities are freely tradeable.
Tier 1. In a Tier 1 offering, the issuer can raise up to $20 million in a 12 month period (up from $5 million under Regulation A prior to the new regulations). State Blue Sky regulations are not pre-empted, although the North American Securities Administration Association ("NASSA") has introduced a system of coordinated state securities law filings which can be done electronically. There are no limits on what an individual who is not an accredited investor, or a company which is not an accredited investor, can invest (subject to the overall cap), and apart from a filing when the offering has been completed or abandoned, no further reports need to be filed with the SEC.
Tier 2. In a Tier 2 offering, the issuer can raise up to $50 million in a 12 month period, and state Blue Sky regulations are pre-empted. A state can still require that a copy of the offering materials as qualified by the SEC be registered with the state, and the applicable state filing fee paid, but the issuer does not need to wait for clearance by a state securities regulatory agency to begin selling in a state. (Note that foreign securities laws may still pose an issue due to the worldwide reach of the Internet.) Due to the potential size of the offering and the fact that the securities are immediately tradeable, the SEC anticipates that a market will develop for securities offered in a Tier 2 offering. As a result, reports must be filed electronically with the SEC semi-annually, annually with audited financials, and if a major event occurs (defined more loosely than a "material" event).
There are at least a couple of structuring issues to take advantage of with the new regulations which are unique to each issuer's situation.
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