Helping Clients Navigate Through Reg A+ Requirements and Challenges
Reg A+ issuer must be a U.S. or Canadian company. Securities qualifying for a Reg A+ offering are limited to equity and debt securities, including warrants, convertible equity securities and guarantees of such securities. Reg A+ excludes offerings of asset-backed securities or fractional undivided interests in oil, gas or other mineral rights. Reg A+ provides for two offering tiers:
- Tier 1 – for offerings of up to $20 million in a 12-month period. Tier 1 does not require audited financial statements but is subject to the state requirements (“blue sky laws”) in every state where the securities are offered or sold.
- Tier 2 – for offerings of up to $50 million in a 12-month period. The company must file audited financial statements and ongoing post-offering reports but the state “blue sky laws” are preempted. Tier 2 contains an additional limitation on the amount of securities non-accredited investors can purchase – 10% of the investor’s annual income or net worth.
- Both Tier 1 and Tier 2 allow issuers to “test the waters” or solicit interest in the potential offering from the general public before or after the filing of the offering statement, subject to disclaimers and, after an offering statement is filed, disclosing the current preliminary offering circular. All solicitation material must be filed with SEC.
Reg A+ offering requires filing of an offering statement on the Form 1-A with the SEC and going through the qualification process until the SEC clears the offering by issuing a “notice of qualification.” The primary disclosure document to be prepared for the Reg A+ offering is called an “offering circular.”
The biggest challenge of a Reg A+ offering of digital or tokenized securities is the significantly heightened SEC scrutiny during the pre-qualification process caused by novel implications of blockchain technology and digital nature of the securities. Thus, issuers should be prepared to address numerous SEC’s comments and disclose to investors all the peculiarities of tokenized securities and associated risks, including related to the issuance, transferring and secondary trading. Issuers should consider conducting a private placement to accredited investors under Regulation D and/or a crowdfunding offering under Regulation CF while the SEC’s Reg A+ clearance is pending.
Guiding Clients Through Reg A+ Offering and SEC Pre-Qualification Process
Our lawyers will guide you through preparation, filing and pre-qualification process of a Reg A+ tokenized offering, including:
- Structuring the offering and the security token terms.
- Incorporating a new issuer.
- Conducting legal due diligence of an existing ownership structure for the issuer to be eligible for Reg A+.
- Drafting offering circular, preparing and filing Form 1-A with the SEC, responding to comments and working closely with the SEC during the pre-qualification process.
- Advising throughout “testing the waters” and in relation to solicitation and marketing materials.
- Advising on operational issues in relation to broker-dealers, crowdfunding platforms and regulated exchanges (alternative trading platforms).
- Providing post-offering legal support of ongoing compliance, secondary trading, capital table management and investor relations.
Reg A+ Related Resources:
