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SEC Issues Regulation A C&DIs
Practical Law Legal Update 8-616-7235 (Approx. 4 pages)
SEC Issues Regulation A C&DIs
by Practical Law Corporate & Securities
| Published on 24 Jun 2015 • USA (National/Federal) |
On June 23, 2015, the SEC issued 11 new compliance and disclosure interpretations (C&DIs) on Regulation A under the Securities Act.
On June 23, 2015, the SEC's Division of Corporation Finance issued new compliance and disclosure interpretations (C&DIs) on Regulation A under the Securities Act. The 11 new C&DIs, issued on the heels of the June 19, 2015 effective date of major amendments to Regulation A, clarify questions on several aspects of the amended rule.
Form 1-A Non-Public Submission Logistics
The C&DIs address questions about the non-public submission process for offering statements on Form 1-A. The C&DIs clarify:
- Details of how an issuer may make public its non-publicly submitted draft offering statements and related correspondence, in accordance with Regulation A's requirement that it do this at least 21 days before qualification (Question 182.01).
- How a company may request confidential treatment of information required to be filed as part of the qualification process. The process described is largely consistent with practice in the context of SEC registered offerings (Question 182.02).
Eligibility to Rely on Regulation A
The C&DIs address questions about the eligibility of issuers to rely on Regulation A, clarifying that:
- Principal place of business. A company will be considered to have its principal place of business in the US or Canada for purposes of determining its eligibility to rely on Regulation A if its officers, partners or managers primarily direct, control and coordinate the company's activities from the US or Canada (Question 182.03).
- Certain former Exchange Act reporting companies. Companies that formerly were required to file Exchange Act reports under Exchange Act Section 15(d) but have suspended their reporting obligation in accordance with Section 15(d) or Rule 12h-3 may rely on Regulation A (Question 182.04).
- Voluntary filers. Voluntary filers may rely on Regulation A (Question 182.05).
- Wholly-owned subsidiaries of reporting companies. Non-reporting companies that are wholly-owned subsidiaries of reporting companies may rely on Regulation A, although in this circumstance, the reporting company parent may not be a guarantor or co-issuer (Question 182.06).
- Business combination transactions. Issuers may rely on Regulation A for business combination transactions other than acquisition shelf transactions conducted on a delayed basis (Question 182.07).
Financial Statements of Recently-Created Entities
A new C&DI describes circumstances under which a recently-created issuer may include a balance sheet as of the issuer's inception date and omit the other financial statements generally required (Question 182.08).
Testing the Waters Communications
Rule 255 of Regulation A allows issuers to "test the waters" by discussing a potential Regulation A offering with potential investors, both before and after filing Form 1-A. However, Rule 255 requires testing the waters communications to include a legend and, if made after the initial Form 1-A filing for the offering, a notice informing potential investors where they may obtain a current preliminary offering circular (which may be a URL).
A new C&DI specifies how issuers can satisfy these requirements if testing the waters communications are made using a medium (such as Twitter) that limits the number of characters or amount of text that may be included. According to the C&DI, an issuer can satisfy the requirements of Rule 255 by including an active hyperlink to the required information in the following circumstances:
- The communication is made using a medium that limits the number of characters or amount of text that may be included.
- Including the required statements in their entirety would cause the communication to exceed that limit.
- The communication contains an active hyperlink to the information satisfying Rule 255's requirements and, if possible, includes a prominent introduction or otherwise conveys that important or required information is provided through the hyperlink.
If it is possible for an electronic communication to include the entirety of the required information without exceeding length limits, it is not appropriate to use a hyperlink instead.
(See Question 182.09.)
Resales and Blue Sky Laws
In Tier 2 Regulation A offerings, registration and qualification requirements of state securities laws (blue sky laws) are preempted. A new C&DI clarifies that this preemption applies only to primary or secondary sales qualified under Regulation A. The preemption does not extend to resales of securities purchased in Tier 2 offerings. Therefore, resales must comply with state registration and qualification requirements or be made under an exemption from these requirements (Question 182.10).
Details of Exchange Act Conditional Exemption
As part of the 2015 amendments to Regulation A, the SEC amended Exchange Act Rule 12g5-1 to create a conditional exemption from Exchange Act registration for companies that complete a Tier 2 Regulation A offering and meet other requirements, including that they engage the services of a transfer agent registered under Section 17A(c) of the Exchange Act. A new C&DI clarifies that an issuer seeking to rely on this conditional exemption must satisfy the requirements of the exemption, including having engaged a registered transfer agent, at the time it relies on the conditional exemption (Question 182.11).
Also on June 23, 2015, the SEC's Division of Corporation Finance withdrew two C&DIs, former Securities Act Forms C&DIs Questions 128.01 and 128.03, which are no longer applicable in light of the recent amendments to Regulation A.
For more information on Regulation A, see Practice Note, Regulation "A+" Offerings under Amended Regulation A.