Equity Crowdfunding Mini-IPO

THE MINI-IPO – SEC Approves Final Rules for Title IV of the JOBS Act (Regulation A+)

In an open meeting Wednesday, the Securities and Exchange Commission (SEC) elected to approve and release the long-awaited final rules for Title IV of the JOBS Act (commonly referred to as Regulation A+). Per the final rules, under Regulation A+ companies will be permitted to offer and sell up to $50 million of securities to the general public subject to certain eligibility, disclosure and reporting requirements

Crowdfunding Game Changer

The original Regulation A was a federal securities exemption that allowed companies to raise up to $5 million in a public offering (i.e. a “mini-IPO). It was rarely used however, because the costs of complying with the federal and individual state disclosure/filing requirements where exorbitant given the maximum amount that could be raised. Especially in light of the fact  that significantly less cumbersome exemptions such as Rule 505 and 506 exists which could be used to raise the same amount, or more (although via a non-public offering). Title IV of the JOBS Act was intended to revitalize the rarely used Regulation A exemption by, among other things, significantly increasing the maximum offering amount making it a much more attractive tool for capital formation. While it has taken almost three years for the SEC to release the final Title IV rules, they represent a huge opportunity for small and mid-sized businesses looking to raise capital as well as investors.

As SEC Chair Mary Jo White noted:

These new rules provide an effective, workable path to raising capital that also provides strong investor protections … It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”

sec regulation A+

Mini-IPOs and Crowd Investing

Before you go running to take advantage of the new rules please keep in mind two things.

  • First, the rules are not yet effective. The final rules released Wednesday will now be published in the Federal Register and will become effective sixty (60) days after publication.
  • Second, while this exemption will be monumental for some companies it will not fit for use with many very small businesses (and can’t be used by start-ups that qualify as “blank check” companies at all).

While Regulation A+ is a very scaled down version of the disclosure and compliance requirements associated with a traditional IPO, compliance with these new rules won’t be easy or cheap.

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