Regulation A

Historically, private companies could only raise capital from accredited investors. Some of the requirements to be an accredited investor includes having a net worth of at least $1,000,000 or having income of at least $200,000 per year for the last two years. This excludes approximately 98% of U.S. investors.

The JOBS Act signed in 2012 allows entrepreneurs to crowdfund, essentially publicly advertising their capital raises. Three years after the JOBS Act was signed Title IV (Regulation A+) of the JOBS Act went into effect, allowing private early-stage companies to raise money from all Americans.

While there are different types of Reg A offerings, one of the most attractive to early stage companies is Reg A Tier II, which allows for raising up to $50 million from both accredited and unaccredited investors. Reg A Tier I allows for raising up to $20 million from both accredited and unaccredited investors. Under Tier I offerings, there is no requirement to ascertain investor status.

In order to go forward with a Reg A offering, companies will first need to file with the SEC and get the qualification. It is important to note that the costs associated with a Reg A offering are substantially lower than a traditional IPO, and the continuous reporting requirements are not as demanding.

For more information on Regulation A please visit the SEC’s resources here

Regulation D 506(b) and 506(c) Offerings

Regulation D has been a core startup financing model for over 30 years and was originally intended to make access to capital markets more accessible for small companies. Angel and Venture Capital firms have traditionally taken this approach. There are two main types of Regulation D 506 offerings Reg D 506(b) and Reg D 506(c).

Reg 506 (b) allows companies to raise capital from an unlimited amount of accredited investors, and up to 35 unaccredited investors. If any unaccredited investors are included in the offering additional disclosures of audited balance sheets and financial statements are required to be provided to all investors. General solicitation or advertising with 506(b) offerings are not permitted.

Reg 506 (c) allows for general solicitation and advertising but only accredited investors may invest. While the investor base is limited to accredited only, being allowed generally solicit huge opportunity to these companies as they can leverage a variety of solicitation channels to include the internet, social media, television and more. Companies must verify “accredited investor” status using federally prescribed reasonable steps to verify that investors that are actually accredited investors.

For more information on Rule 506 of Regulation D please visit the SEC’s resources here

Regulation CF Section 4(a)(6) Crowdfunding Offerings

Regulation CF offerings were established in May of 2016, and enable US companies that are not investment companies per the Investment Act of 1940 and are not an SEC-reporting company to be able to raise up to $1 million from any investor, accredited or unaccredited. Reg CF has a number of restrictions on how much any one person can invest. Contributions are restricted to be 5% of an individual’s net worth for income below $100k and 10% of an individual’s net worth for income in excess of $100k. Based on that criteria investors are eligible to contribute a minimum of $2k and a maximum of $100k

For more information on Regulation Crowdfunding, please visit the SEC’s resources here

© 2018 Delaware Board of Trade inc. , DBOT ATS LLC. All rights reserved