Last month, Corp Fin’s Office of Small Business Policy issued no-action relief to a company from the requirement to file an annual report on Form 1-K under Regulation A – despite the fact that the company didn’t qualify for reporting suspension under Rule 257(d) of Regulation A. Corp Fin based its reasoning upon public policy considerations underlying the Reg A reporting requirements, as the company didn’t have shareholders who would benefit from ongoing reporting obligations, and there wasn’t a secondary market that would emerge from Regulation A offering.
Based on this development – and other actions that Corp Fin has recently taken benefiting smaller companies – here are some considerations to ponder in this evolving Reg A regulatory environment:
1. Understand when reporting relief may be granted: Even if an issuer doesn’t qualify for suspension of reporting under Rule 257(d), the SEC may grant relief from filing requirements based on public policy considerations – particularly if there are no shareholders or active secondary market.
2. Know the two tiers of Regulation A: Reg A offers two tiers: Tier 1 (up to $20 million) and Tier 2 (up to $75 million) in a 12-month period. Each comes with its own requirements, particularly around post-offering reporting for Tier 2 issuers.
3. Comply with Rule 257(d) conditions for suspension: To suspend 1-K reporting under Rule 257(d), an issuer must have fewer than 300 shareholders of record and be outside the fiscal year in which its Tier 2 offering was qualified. Missing either prong removes automatic suspension eligibility.
4. File a 1-K the year your offering qualifies: Regardless of shareholder count, a Tier 2 issuer must file a 1-K for the fiscal year in which the offering statement is first qualified. Relief may be possible – but don’t count on it without a compelling case.
5. Stay current on the SEC’s easing of the Reg A framework: The SEC is actively reviewing Reg A’s utility. With usage low and capital raised under Reg A still dwarfed by Reg D, the SEC may revise the framework. Keep tabs on updates from the SEC’s Small Business Capital Formation Advisory Committee.
6. Advocate for regulatory change with facts: In the spirit of SEC Chair Paul Atkins’ recent remarks about Reg A offerings, companies and counsel should proactively engage with the SEC and its advisory committees to suggest pragmatic improvements to Reg A that support innovation and access to capital.
Authored by
Broc Romanek