On April 5, 2012, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”), which is intended to help smaller and emerging growth companies access the U.S. capital markets. The JOBS Act amends, and adds new sections to, the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”), as well as to the Sarbanes-Oxley Act of 2002.
The JOBS Act substantially increases the appeal of Regulation A which was created under Section 3(b) of the Securities Act to exempt public offerings not exceeding $5 million in any 12-month period by non-reporting companies from registration. The JOBS Act creates the possibility that shares issued in Regulation A offerings will qualify as “covered securities” under state blue sky laws. Issuers should consult with a Regulation A attorney prior to planning an offering in reliance upon the proposals.
The new proposals will apply to all issuers: SEC reporting companies and non-reporting companies quoted on the OTCMarkets Pink Sheets.
These proposals will make it easier to attract the shareholders necessary to obtain a ticker symbol and will encourage issuers to go public direct without an underwriter and to undertake direct public offerings instead of reverse mergers with public shells.
As currently in effect Regulation A offerings:
• do not require audited financial statements;
• may be publicly offered and sold;
• do not cause the issuer to become an SEC reporting company;
• allow three disclosure formats including a simplified question and answer format;
• can be made to accredited and unaccredited investors;
• allow the issuer to “test the waters” to determine if there is investor interest in its offering;
• allow securities to be issued without a restrictive legend if state blue sky laws allow unrestricted securities to be issued;
• are available to issuers organized and having a principal place of business in the United States or Canada;
• can only be relied upon by issuers who are not subject to the 1934 Act’s periodic reporting requirements;
• cannot be relied upon by development stage companies; and
• are not available to issuers that have been the subject of SEC enforcement proceedings.
The JOBS Act and Regulation A
The JOBS Act requires the SEC to adopt rules (the “Rule”) modifying Regulation A. Many of the existing provisions of Regulation A will stay in place after implementation of the revisions. The primary changes resulting from the Rule include increasing the cap on Regulation A offerings from $5 million to $50 million and federal preemption of state laws allowing shares issued in Regulation A offerings to qualify as “covered securities” under state blue sky laws. The impact of the “covered securities” designation will allow the issuer complying with Regulation A to issue unrestricted securities under certain circumstances.
• permit the issuer to solicit interest in the offering prior to filing any offering documents with the Securities and Exchange Commission;
• provide that the securities will not be considered to be “restricted securities”; and
• amend the Securities Act to designate securities offered and sold pursuant to the Rule as “covered securities” for purposes of Section 18 of the 1933 Act if the securities are offered and sold on a national securities exchange or to “qualified purchasers.
Lastly, the JOBS Act grants the SEC the authority to create other rules and regulations for the protection of investors. These rules may include a requirement that issuers file disclosures with the SEC and provide such disclosures to investors. They will include information about the issuer’s business and operations, management, use of proceeds, corporate governance and must be accompanied by audited financial statements.
The SEC may also require disqualification provisions with respect to Regulation A offerings similar to the regulations found in the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act that prohibit felons and other “bad actors” from making Regulation D offerings.
For more information about the JOBS Act please visit our blog post at:
For more information about Regulation A please visit our blog post at:
