April 30, 2012
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JOBS Act Aims to Revive Exemption for Limited Offerings Under Regulation A
The Jumpstart Our Business Startups Act (the “JOBS Act”) passed by Congress and signed into law by the President on April 5, 2012, requires the Securities and Exchange Commission (the “SEC”) to issue rules adding a new class of securities exempt from the registration requirement for offerings under the Securities Act of 1933. The new law gives the SEC no deadline for issuing these rules, which will increase the maximum amount of securities that may be issued in a 12-month period under the Regulation A (“Reg A”) exemption, or a successor rule, from the current ceiling of $5 million to $50 million.
Until now, Reg A “mini-offerings,” which require issuers to file offering statements with the SEC despite the limited offering size, have been relatively unused. The increased offering amount may make offerings under the new Reg A exemption a more attractive option for raising capital. On the other hand, it is also possible that additional requirements – such as audited financial statements, increased disclosures, and conditions on State-law preemption – may make the new Reg A exemption remain less appealing to issuers than alternatives such as private placements under Rule 506, for which the JOBS Act removed the ban on general solicitation, as discussed in another Lathrop & Gage alert.
Securities Offered under the New Exemption
The JOBS Act provides that securities offered under the new Reg A exemption:
Other Requirements for the New Exemption
In addition, several other requirements will apply to offerings under the new Reg A exemption:
SEC Authorized to Impose Additional Requirements
The JOBS Act empowers the SEC to impose additional requirements for the new exemption, if the SEC determines these requirements to be in the public interest and necessary for the protection of investors, including:
Some Open Questions
The JOBS Act is silent on several current aspects of Reg A, so SEC rules are needed to provide guidance on them.
Further details about the new Reg A exemption will eventually be forthcoming in rules to be proposed and, after a public comment period, issued in final form by the SEC.
Additional Lathrop & Gage alerts discuss other important provisions of the JOBS Act. To discuss this alert or any securities law matter, please contact your Lathrop & Gage attorney or any of the attorneys listed on this alert.
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