Regulation A is the common name for an SEC regulation that relates to securities offerings totaling to $1.5 million or less. The offerings that fall under Regulation A are able to qualify for a simplified registration process through the SEC.
There are only certain kinds of companies that can qualify for Regulation A. The company that makes the public offering must be located in and do most of its business in either the United States or Canada. The company must be able to show its purpose through a business plan, which disqualifies younger startup companies that haven’t gotten that far yet, and also public shells cannot qualify for Regulation A, since their purpose is to simply be used as a merger shell for a private company. Besides this, the aggregate offering price to be received for all the securities in the public offering must be less than $5 million. No more than $1.5 million can be offered by all the selling security holders.
In preparing to make a public offering through Regulation A, a company should first analyze its situation closely. Most of the time the primary purpose of a public offering is to raise capital for a business. While doing so through Regulation A exemption is easier, an investment bank may well still need to be hired to help give legal advice and do other footwork for the company preparing to make the securities offering. Some companies may find more success by trying to produce greater revenue through increased internal funding instead.
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