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Editor’s Note: Chris Tyrrell is the chief executive of OfferBoard Group, and Chair of the industry trade association CFIRA.  

Earlier this week, the Securities and Exchange Commission (SEC) announced a new set of rules implementing Title IV of the JOBS Act.

These changes affect Regulation A small public offerings, and are colloquially referred to as “Reg A+”.

The release of these final rules further advances one of the core principles and goals of the 2012 law: to create an environment where emerging enterprises can raise public capital efficiently.

The rules approved by SEC commissioners on Wednesday lift the ceiling on the amount of capital a business can raise in a Regulation A offering from $5 million to $50 million, split into two “Tiers” — up to $20 million in 12 months (Tier 1) and up to $50 million in 12 months (Tier 2).  Companies raising less than $20 million will have a choice between Tier 1 and Tier 2.

These are public offerings, much like a traditional IPO, but the regulatory burden on the company making the offering is lower, both when the shares are being sold and afterwards.

The release of these final rules further advances one of the core principles and goals of the 2012 law: to create an environment where emerging enterprises can raise public capital efficiently.

Certain Regulation A+ companies, which meet shareholder limits or revenue and public float caps, will avoid the SEC’s standard reporting regime – Forms 10-K, 10-Q, 8-K and proxy statements, and such companies are also exempt from many onerous “public company” rules, including Sarbanes-Oxley (SOX) and more esoteric burdens such as rules relating to disclosure of the use of “conflict minerals”.

Every investor, whether accredited or unaccredited, will be able to participate in these offerings.

This is welcome news to small and medium sized enterprises striving to raise capital, but which lack access to high net worth investors or institutions. Reg A will open many more offerings in growing companies to everyone, which will increase capital formation and grow jobs and the economy.

One of the most controversial and important provisions of the new Reg A rules is federal preemption of state review of these offerings, under state rules known as “Blue Sky” laws.

This week’s changes are intended to blow off the dust that had gathered on this sparsely used capital formation tool, and get it out of the regulatory muck.

Previously, each company had to individually register their Reg A offerings in every state where their securities were offered. This administrative burden was in addition to required registration with the SEC, and resulted in very few Reg A offerings ever being made. Now, under Tier 2 of Reg A, only SEC review is required, significantly reducing this administrative burden for businesses.

During the drafting process, the SEC has been concerned with how the new rules will protect investors – particularly unaccredited investors –- while remaining simple and streamlined enough to encourage capital formation.

Some have attributed the delay in JOBS Act rule-making to the difficult task of resolving these potentially countervailing interests.  The final rules struck a balance here, requiring companies to file their Reg A offerings with the SEC several weeks before the first sale.   This gives state regulators time to utilize the filings to identify potential problems.

Reg A offerings are not new — this small offering exemption has been available since the Securities Act of 1933 first became law. But the number of offerings qualified by the SEC dwindled in recent years, from 57 in 1998 to only 1 in 2011.

This week’s changes are intended to blow off the dust that had gathered on this sparsely used capital formation tool, and get it out of the  regulatory muck.  On May 25, the rules will become effective and emerging growth companies around the country will have a new “A+” tool in their capital arsenal.

Below is a table comparing some of the provisions of Tier I and Tier II under Reg A:

Comparison Of Tier I And Tier II Regulations

Tier I Tier II
Maximum Offering Size $20 million $50 million
Investor Types Accredited and unaccredited Accredited and unaccredited
Individual Investment Limits None. 10% of the greater of annual income or net worth, as self-reported
Advertising/General Solicitation No restrictions.* No restrictions.*
Financial Disclosures Accountant-reviewed financials Audited financials; compliance with Reg S-X
State Preemption No; state coordinated review with SEC filings Yes

* The content of any solicitation must fit within the “test-the-water” requirements or be in the form of a Preliminary Offering Circular.