1. Amendments to Rule 251
Below we discuss the potential economic effects of the amendments to Rule 251(b) that permit companies subject to Exchange Act reporting obligations to rely on Regulation A.
a. Effects on Issuers
Reporting companies that are newly eligible under Regulation A may realize several benefits from the amendments.
First, reporting companies may benefit from the additional flexibility in raising capital permitted under Regulation A. Reporting companies offering securities not listed on a national exchange that use Tier 2 are eligible for blue sky preemption, which can expedite the offering process, allow offerings involving a wider range of reporting companies and offering terms,
This estimate is based on Form BD filings as of December 2017. It is not limited to underwriters of small offerings due to data availability reasons.
This would be particularly applicable to issuers offering securities in states with merit review and enable offers of securities in multiple states to a broader range of investors.39 However, Regulation A does not permit at-the-market offerings, which may limit the attractiveness of this offering method for some reporting companies.
Second, Regulation A, particularly Tier 2,41 may also provide additional flexibility with respect to solicitation of investor interest (i.e., “test-the-waters” communications), as compared to registered offerings, particularly for reporting companies that either do not qualify as emerging growth companies (EGCs) or that seek to solicit indications of interest from individual or small institutional investors. Subject to certain conditions, Regulation A issuers may solicit indications of interest from any investor before qualification of an offering statement, which may allow issuers to gauge investor interest prior to deciding whether to incur the full cost of the offering.
Test-the-waters materials used in conjunction with a Regulation A offering must contain required legends and, should an issuer proceed with an offering, must be publicly filed, and a Preliminary Offering Circular must be available in conjunction with test-the-waters materials used after the public filing of the offering statement.43 Further, reporting companies that elect to solicit indications of interest in conjunction with a prospective Regulation A offering in reliance on Rule 255 remain subject to Regulation FD. In addition, Regulation A contains a safe harbor from integration of Regulation A offerings with any prior offers or sales of securities,