Regulation A+ (or “Reg A+”) is a new way to raise capital created by the Securities Exchange Commission (SEC). Effective March 25, 2015, SEC rules allow companies to test the attractiveness of their company offering to the investor market.

Under the new Regulation, companies can raise up to $75 million per year from individual investors. This means that start-ups and growing businesses don’t need an angel investor worth millions or billions of dollars to help take their company to the next level. Regulation A+ dramatically improves the funding prospects for companies that are too small to make a regular IPO on the NASDAQ, for example, or which do not have access to a Private Placement or to Venture Capital. It completely changes the prospect of raising capital, giving start-up, mid-stage, and late-stage companies the opportunity to raise capital from many smaller, individual investors, who become owners of shares in the company. While of course, Angel investors and professional investors are encouraged to invest too.

According to the Securities Act of 1933, every company has to register their offering with the SEC in order to sell their shares. There are situations where the exemptions allow the companies to sell their shares without a SEC registration. One such exemption is Regulation D or Reg D.

Reg D provides three exemptions from the registration, Rule 504, Rule 505 and Rule 506. For purposes of online equity crowdfunding, Rule 506 is most significant, and it splits into two different variations, 506B and 506C. In each case, only accredited investors are allowed to invest. With a 506C offering, the company can raise an unlimited amount of capital, but only from accredited investors. It is allowed for the issuing companies to promote and advertise their offerings. The issuer companies have to take steps to verify that the investors are actually accredited. Although the companies don't need to register with the SEC, they have to file a Form D, which includes information about the company's offering, promotors, the companies themselves, and some further information about the offerings.

Regulation A+ allows for two kinds of offerings, Tier 1 and Tier 2.

Tier 2 allows companies to raise $75 million per year from individual investors, accredited investors, and institutions worldwide. Most companies choose Tier 2 because the Tier 1 requirement to obtain State by State Blue Sky exemption is very slow and very expensive. Companies using Tier 2 do not need to satisfy state Blue Sky requirements to raise capital (with some exceptions).

How Tier 2 is more challenging than Tier 1:

The required upfront audit - (US-GAAP level) goes back up to two years, and the audit is for the period since the company was started for new startups. The many Tier States require 1 offering company to provide audited financials, so this one is often moot. The reporting requirements after the offering put some CEOs off. Management financial statements are required 6-monthly and an annual US-GAAP audit. Tier 1 permits capital raises of up to $20 million per year from individual investors, and of course, from accredited investors and institutions worldwide.

With Tier 1, the SEC does not require an audit before filing. However, this advantage often falls by the wayside because the many US States require audited financials for Tier 1 to satisfy their process. Another potential advantage for Tier 1 is that your company is not required by the SEC to provide an annual audit after you complete your raise.

It is more involved to make a Tier 1 offering because you must satisfy the Blue Sky investing regulations of each US State that you accept investors from. As a result, Tier 1 is generally used by Banks because they often have available State exemptions and a local customer base that they can appeal too easily.

For the investor, the degree of actual liquidity depends on the Issuer company's Reg A+ offering. If they list on the NASDAQ or NYSE then liquidity can be excellent. If they list on the OTCQB or the OTCQX, then the liquidity can be good to very good.
‍
When an Issuer company does not list on the above exchanges, then liquidity is limited to the specialized Reg A+ aftermarket exchanges, and broker-dealers that support Reg A+ share trading in the aftermarket. These exchanges are small and offer limited liquidity at present; they are growing to fill the need. 
The Issuer company may choose to offer direct liquidity to their investors by defining what valuation method they will use and what other restrictions will apply in their Offering Circular. This type of liquidity is regulated. 
‍
The company's Affiliates will need to resell their Reg A+ shares in reliance on Rule 144 if they want to sell publicly. There's no holding period imposed, but there are limitations on the number of shares they can sell at any one time, they'll need to sell through a broker or market maker, they'll have to file a Form 144 with the SEC and "adequate current public information" must be available about the company, which means it must be compliant with Regulation A's ongoing reporting requirements. 
‍
The pleasant surprise for many company founders and long-term investors is that when a Tier 2 type Reg A+ completes its six-monthly reports of profits and losses and after reporting the annual US-GAAP audit, then for two weeks after the results are announced, insiders can sell their securities if they have passed their Rule 144 holding period (usually 12 months). Insiders (management and founders) and investors that own more than 10% of the stock in the company are restricted to selling less than 1% of the "Float" (the daily trading volume) per day. 
‍
Non-Insiders - ie passive investors with less than 10% ownership that have passed their Rule 144 holding period (usually 12 months)- can sell their non-Reg A+ securities. Their securities are made public by the Reg A+ unless the company locks them. 
‍
Issuers that want their Reg A+ shares to be tradable all year round can make quarterly management financial filings with the SEC; this then opens up liquidity for insiders four times per year. 
‍
Entoro Capital is not a law firm, and this is not legal advice. Please contact your lawyer with respect to any of the matters discussed here.

An ATS (Alternative Trading System) is an after-market exchange where people who own securities can buy and sell.

Because all Reg A+ offerings are Public Offerings, listing Reg A+ securities during the offering and after the Reg A+ completes on an ATS is a useful way for a company to provide liquidity to its investors.

Reg D securities are more liquid than many people realize and they can be listed and bought and sold on ATS exchanges.

Rule 144A securities can be bought and sold on ATS exchanges.

One big advantage of ATS exchanges is that shorting of stocks is not possible and naked shorting is not possible. (Stockbrokers are allowed to put shorts on stocks on the OTC, NASDAQ, and NYSE, without being required to borrow the securities - so some put naked short positions on stocks- which can be very damaging to the companies they choose.) The SEC regulation only requires stockbrokers to have reasonable access to borrow. That is a very ambiguous term that in practice allows naked shorting.

All investors that initiate investments on the OfferBoard platform are required to pass the KYC/AML test before they complete their investment. No investors will be accepted unless they first pass KYC/AML.

Anyone! (see the exceptions below). Investors worldwide can invest under Regulation A+ into companies that make their stock offerings with help from Entoro. Ordinary investors don’t have to be wealthy to invest! Investors are welcome from almost anywhere in the world.

The only limitation is that investors cannot invest greater than 10% of their annual income or 10% of their net worth, excluding their homes. This is a per-investor limit per company they invest in, and it only applies to Tier 2 offerings. Investors are allowed to self-verify their income and net worth. Issuers are not required to independently verify.

The inclusion of investors who are not necessarily wealthy is the big deal here. Now companies can take investments from millions of people who could not participate before.

Accredited investors ($1 million or more in net worth) are not limited in how much they can invest. Investors from outside of the U.S. are welcome, with the same limits.

Please note that the regulations of your country may restrict you from investing via Reg A+ offerings. As an investor, you must check the regulations that apply to you, in your country. Subsequent to Regulation A+ rules being made effective in the USA, the Canadian regulators imposed limitations on Canadian investors, so most Reg A+ offerings do not accept Canadian investors. We have been advised that if a company gains prior approval from the Canadian States on a State-by-State basis, then Canadian investors would be allowed to invest via Reg A+.

Is there a legitimate way to raise more than the $75 mill cap with Regulation A+?
‍
Yes, in some circumstances. For businesses that lend themselves to segmenting their market, it may be possible to make multiple offerings by following a similar model to the one that Fundrise has used. Each Reg A+ entity is a standalone business and shares one management service provider. In this way, Fundrise has conducted multiple Reg A+ offerings simultaneously since 2016. So far, this model has only been Qualified by the SEC in Real Estate situations, but the SEC may allow the same approach in other business areas. We don't know yet.
‍
In theory, it makes sense that using a separate management entity this approach could be applied to businesses in other fields than real estate. Time will tell.

There is more and more evidence that at this early stage in the Reg A+ funding market, companies must resonate strongly with consumer investors to succeed. That appeal, plus first-rate marketing with front-loaded impact and budget, is required to bring in consumer investors and to prove traction early. Even in offerings that are attractive to broker-dealer syndicates, in most cases, brokers will not act to promote an offering to their clients until early success is apparent from consumer investors.
‍
Companies should set a low funding minimum unless they are buying a fixed price asset. This makes it easier to make the offering go live and conduct the first closing and to pay for subsequent marketing from capital raised.
‍
Mistakes to Avoid with your Reg A+ offering to maximize the prospects of success:
‍
Making an offering that isn’t a consumer investor fit: Because seasoned investors are skeptical about new developments in the financing business and generally hyper-cautious about jumping into anything that seems untested, Reg A+ companies must appeal deeply to consumers to be viable. This audience (and potential backers), however, may absolutely love a product or a company and be eager to participate in its growth. Just take a look at some of the big Kickstarter raises for some good examples.
‍
Many companies that do not inherently appeal to consumers have tried Reg A+ anyway. This is the single biggest cause of under-performing offerings. Make sure your company is a good fit for Reg A+ before you move forward.
‍
TestTheWaters™- falling for the Red Herring: In theory, TestingTheWaters™ is a great concept. It allows companies to test market to find out if their products are interesting enough to make a Reg A+ offering worthwhile. The trouble is that too many companies end up in this informal marketing mode for far too long. If there is a delay in the audit, or in a part of the SEC filing, and a company is still in “test” mode, it risks losing its earliest and most enthusiastic would-be investors. Stretch the process out for 6 months and the impact can be fatal for an offering.
‍
To avoid stringing along what could be your most valuable brand ambassadors, plan the timing of these key events early on so that you have nailed down the project plan before you start marketing the offering and creating enthusiasm among potential investors. It’s always easier to create excitement just once.
‍
Audit surprises. Because a completed audit is required before filing a Reg A+ offering with the SEC, it tends to be the critical path item and can delay the whole process. Audits are only required for Tier 2 Reg A+ offerings, but almost all deals are Tier 2. Choose an audit firm that has a track record of working with Reg A+ offerings and doing so without price and schedule surprises. Some audit firms are abusing their position in the process.
‍
A Reg A+ offering has to be thoughtfully managed. There are often unexpected snags along the way. But a well-crafted plan can usually avoid the worst SNAFUs.
‍
Not enough capital available. 75% of Reg A+ companies need to raise Capital to fund their Reg A+ offering before they can get started. This causes delays. In some instances, companies move forward with their marketing process anyway, with a low budget marketing approach - which is a recipe for disaster. Early slow traction causes the rest of the offering to become extremely difficult, or impossible.
‍
Only Allowing investors from the USA: Many companies have restricted themselves to US-only investors. International investors have fewer exciting investment options and can be more cost-effectively reached through digital marketing. And of course, some companies have a strong international presence that they can build upon. In many cases, successful offerings will raise more money internationally than from US investors.
‍
Bringing too much complexity: Instruments like convertible notes, bonds, and preferred investor returns may work when you can meet one-on-one with each investor. But they complicate the picture for consumer investors that must be able to efficiently make their investment in large numbers with minimal interaction with the company selling its shares. Keep your offering simple to avoid losing them. The moment you require them to study your offering to understand it, you will lose so many investors it can devastate your offering. Sell shares of common stock.

These are the ideal situations where Tier 1 is best:
1) All your investors are local and in one State, and the State is easy to get your Blue Sky filing qualified. See the detailed list of States and how they work.
2) Your company is a bank that is exempt from State Blue Sky filing requirements.
3) All your investors will be from OUTSIDE the USA. Then you have no need to file for Blue Sky exemption with any US States.  This is close to ideal.
4) A maximum raise of $20 mill is sufficient. (Tier 2 starts at zero and goes up to $75 mill*).
‍
The acceptance of cryptocurrency payments presents the potential for companies to raise capital from investors worldwide which may allow them to successfully raise capital from non-US investors. This opens up the possibility for companies to use Tier 1 for its simplicity, and only accept investors from some US States that have simple/efficient Blue Sky filing programs. Tier 1 doesn't require an audit prior to the Reg A+ SEC filing, the post-offering reporting requirements are significantly reduced (no audit and no 6 monthly profit and revenue reporting) and the investors are not limited as to how much they can invest.
‍
*For businesses that can segment their market by geographic regions, it is possible to make multiple simultaneous offerings for one entity.

The SEC created this program so companies can make this test before having to spend the time and money it takes to make an SEC filing and get an audit done. The SEC allows companies to market themselves in Testing The Waters (TM) with few restrictions. So companies can cost-effectively conduct a test using social media, email, online advertising and more.
‍
When you have run a test for a couple of months, it will be clear if there is enough enthusiasm for your company to justify doing a Reg A+ offering. If you choose to move forward, you can then get an audit done, get the SEC filing underway and return to make your live investment offering when you are ready. Testing The Waters (TM) enables companies to test market themselves to see if there is enough investor interest to make a Regulation A+ capital raise successfully.

There is no special sequence, no preference. The company itself, and any selling shareholders in an offering are made liquid on a pro-rated basis throughout the offering.  So, for example, if an offering is ended at 92% of the maximum goal, then all the selling shareholders in the offering will have sold 92% of the shares that they intended to sell in that offering.

Yes. If you set up a company in the USA or Canada, then you are allowed to use Reg A+ using that entity.
‍
Most companies that take this route set up a "C" Corporation in Delaware, but you can also set up an LLC or a Limited Partnership.
‍
The company must have US-based executives and Board members (not 100% but primarily US-Based). It can operate outside of the USA, and it must have a legitimate business role and rights to satisfy the SEC and to attract investors in the Reg A+ marketing.

One of the great things about the Reg A+ system is that you are allowed to market your company widely. It's the opposite of the traditional IPO "Quiet Period". This means that you are allowed (and you won't succeed if you don't do this) to market your company and gather non-binding reservations before SEC Qualification of your Offering. After SEC Qualification, you can actively market to actual investors through all methods to generate investments. Of course, doing this requires a dedicated and effective marketing program that covers all the bases - 360 degree marketing. That means testing marketing messages, the creation of a beautiful and clearly written offering that appeals to your audience, a compelling and short video, PR, advertising, social media, influencer marketing and more. Project management and the coordinated combination of all the moving parts is a significant skill that most agencies don't need but that is essential in crowd investor marketing. We work with some very talented marketing agencies that specialize in the kind of marketing that is needed. We will introduce you to them.

A security token is a token that is sold to investors via one of the SEC regulations - Reg D, Reg S, Reg A+ and Reg CF are good examples. A Registered S-1 IPO is another route.
‍
It is important to note that a token that is a security is not required to have the same characteristics as a share of stock. When you define your token security, it is your choice what the rights are that you assign to your tokens. So things like ownership rights, profits, dividends and preferences that are often assigned to share ownership may or may not be part of your token security.

Regulation A+ requires detailed disclosures that are similar to but far less extensive than for a traditional public offering under the oversight of the SEC. Think of the RedHerring (TM) that you may have seen or heard of.  But with simpler requirements. The process of filing for permission from the SEC to make a Reg A+ offering involves online work using EDGAR.  Form 1A is the document that must be filed with the SEC. Dealing with the SEC is likely to be a multi-step process.
‍
After funding, your company will be required to make regular financial disclosures to the SEC, but they are far less demanding than those required today for a public company on the NASDAQ or NYSE. Companies that make Tier 2 offerings are required to file financial results with the SEC twice per year, and any material change must be posted when it occurs. We will post detailed instructions and videos about dealing with the SEC, and we will offer services to assist you.
‍
Companies that use Tier 1 are not required to make ongoing reports to the SEC, and they do not have to file audited financials prior to the offering. They are required to report material changes in the status of their business to the SEC when they occur.

"I have to use a Tier 1 offering if I am raising less than $20 mill." Not true. Tier 2 Regulation A+ offerings start at zero, not at $20 million. Tier 1 offerings start at zero too, and they cap out at $20 mill. But Tier 2 offerings start at zero and extend up to $75 mill* per company per year.
‍
Many people think that Tier 1 is easier - this is not usually the case. Some states are taking a long time to conduct the interactive Blue Sky filings that are required for every state that your offering accepts an investor from. The cost of a legal service provider and the time that it takes can easily get out of hand. Few Tier 1 filings are being funded for this reason.
‍
"I need a two-year audit for the SEC but my company is only a year old - what shall I do?" The SEC requires an audit for Tier 2 offerings that extend back two years or as long as your company has existed. So if your company is one year old, you will need a one-year audit.
‍
"Can I set a zero minimum for my Regulation A+ offering?" Yes, the SEC allows offerings that have no minimum goal where the intent is to grow the company and doing so makes sense even with a small capital raise. If you are raising capital to buy an asset - like buying a building or a company, then you will need a minimum to break escrow.
‍
"The share price of a qualified Regulation A+ offering cannot be changed." Not true, you are allowed to change the share price of a qualified offering. You have to file a Form 253G2, which is an Offering Circular Supplement and after the SEC has qualified the new share price, you can switch to the new price.
‍
"Am I required to have a Broker-Dealer on my Reg A+ offering?" No, you are not required to have a broker-dealer. There are advantages and costs associated with having a broker. You can add a broker-dealer to your Reg A+ after it has been Qualified by the SEC. When involving a broker, FINRA will review and accept or not accept the terms with the broker - the broker can only be involved when and if FINRA accepts the terms. In a Reg A+ that includes a broker initially, the SEC will wait to Qualify the offering until FINRA has accepted the broker-dealer and terms. There is less schedule uncertainty when a broker arrangement is added post-SEC Qualification.

Is this like a reverse merger or buying a public shell?
‍
Buying a public shell is one way that mid-sized companies raise equity capital to grow. It is expensive, complex, and it is sometimes difficult to get over the negative history of the old public company that failed in the past (that failure is why the shell was available to be purchased).
‍
In comparison, Regulation A+ offerings are much simpler, less expensive and they are fresh and new.  The limit of $75 million per year per company in Reg A+ does mean that some companies that are raising larger amounts of capital will still need to go the reverse merger route.
‍
Under the new regulation, companies can raise up to $75 million* per year from individual investors.

Not needing an audit is appealing and not having to file results each six months and an annual audit every year suits my company well.
‍
Factors that suit using Tier 1:
• All your investors are local and in one State, and the State is easy to get your Blue Sky filing approved.  Check out the states that matter to you here: See the detailed list of States and how they work for Blue Sky Filings.
• Your company is a bank that is exempt from State Blue Sky filing requirements.
• All your investors will be from OUTSIDE the USA. Then you have no need to file for Blue Sky exemption with any US States.  This is close to ideal.
• A maximum raise of $20 mill is sufficient. (Tier 2 starts at zero and goes up to $75 mill*).
• You do not want to list your company on an OTCMarket like OTCQB or OTCQX or the NASDAQ.
‍
*For businesses that lend themselves to segmenting their market, it may be possible to make multiple offerings by following a similar model to the one that Fundrise has used. Each Reg A+ entity is a standalone business and shares one management service provider. In this way, Fundrise has conducted multiple Reg A+ offerings simultaneously since 2016. So far this model has only been Qualified by the SEC in Real Estate situations, but the SEC may allow the same approach in other business areas. We don't know yet.

A low minimum such as $100k for the first closing has some significant advantages based upon observing companies doing Regulation A+ offerings:
1) A low minimum makes the offering real or "effective" very early in the process which matters hugely to the Broker-Dealers - they will not engage till that has taken place. The higher the minimum, the less engagement from the Broker-dealer syndicate a company will get to the point where they will not engage at all.
2) Item 1 above applies to retail investors too. They are more inclined to invest when an offering is "Real" than when the whole thing could unravel if the minimum is not met.
3) A company can bring in capital early with a low minimum, so the cash flow impact of the marketing expenditures is largely neutralized from the earliest time in the process - this is very good for ensuring adequate funding of the marketing with less cash flow risk.
4) Some companies have failed to raise enough capital to meet their high minimum, then re-filed with the SEC for a lower minimum and re-launched their offering. This is very expensive and consumes a lot of time.

The SEC is Qualifying offerings with no minimum. The advantage of a low minimum is that when the offering exceeds it, then the first closing can take place, and your company can then pay for the cost of ongoing marketing to investors from investment proceeds. Then closings can be made weekly or similar to get funds to your company bank account.
‍
For offerings to pay for the purchase of an asset such as to buy a company or real estate, then the offering minimum must be sufficient to complete the purchase, which places a heavier upfront cost burden on the offering company.

No. A PE Fund or Private Equity Fund is not allowed to raise capital using Regulation A+.

A hybrid Reg A+ offering includes both retail investor marketing to an online investing platform and software that is easy to use with a Broker-Dealer or Syndicate/Underwriter that will engage with their client investors. These are the key components:
‍
Engage a 360 crowdfunding marketing agency:

Some companies have attempted to promote their own offerings. Crowd investing is a very specialized field that requires a 360-degree marketing agency that covers all the bases (meaning PR, advertising, social media, creating a beautiful offering, video production and more), incorporates careful project planning, and utilizes highly cost effective methods. There is simply no choice but to engage a top-notch Crowd investing marketing agency. Reg A+ is a funding system that is truly open to the public, and as a result, early success must be delivered and shown for the later weeks to work well. Weak early traction leads to failed offerings. Find an agency, agree on a budget, and manage the heck out of the project for maximum success.
‍
It is not a requirement in Reg A+ that you use a Broker-Dealer. However, some companies have maxed out the available consumer investor pool without achieving their funding goal. An automobile company offering, for example, was a tour-de-force of consumer marketing, but the company ended their raise at $17 million, even though they intended to raise $25 million. Had they included a Broker syndicate they would have easily raised the full amount – brokers wanted in. The fact is, as a practical matter you cannot go back and retrofit a BD Syndicate after you have started your offering. It's a requirement that the syndicate file with FINRA and be included in a company's SEC filing.
‍
Don't expect broker-dealer syndicates to produce investment results before consumer investor traction has been shown. In almost all cases, broker-dealers will only actually engage when consumer investment momentum has been proven. Why should a Broker Rep risk their relationship with their clients till we have shown proof that it's already working? To completely fill an offering it is prudent to include the investors that a Broker Dealer Syndicate can bring. Fill your offering – don't limit your options.
‍
Set up an online investing system that is remarkably easy to use and that includes a broad variety of investors.

The securities sold in a Reg D offering are “restricted” under US securities law and can be resold via Alternative Trading Systems (ATS) to other accredited investors but cannot be resold to the public for the first year after purchase. After one year, investors that are not insiders (Affiliates) in your company may sell the securities publicly without restrictions (non-affiliates are investors that are not employees or executives, or founders of the company, and they own less than 10% of the company).
‍
With the growing presence of Alternative Trading Systems (ATS) there are an increasing number of trading forums for the Reg D shares of early-stage privately-owned companies, whether that trading takes place in private transactions with accredited investors, or publicly to all investors. When a company satisfies the listing requirements for an ATS, then it can have its securities quoted or posted on ATS platforms, so that non-affiliates can sell them. Since the whole ATS category of marketplaces is very new, liquidity will take time to build.
‍
The Reg D shares are treated differently from the ones sold under Regulation A. The one-year holding period applies even if the company has made a Reg A+ offering. The Reg A+ will make all securities in the company tradeable after their Rule 144 holding period has passed. Of course, Rule 144 does not apply to shares purchased through the Reg A+.
‍
Public sale lockup restrictions are reduced for people or entities who are not affiliates after a year has passed since the securities were first acquired from the company. There are exceptions to the one-year lockup in the Reg D context, see below.
‍
Holders of Reg D securities of non-reporting companies who are not affiliates, (affiliates are a type of insider) may resell in the following ways:
• At any time privately in sales under the so-called "Section 4 (1 ½) exemption", on the basis of an opinion of an attorney typically only to other accredited investors
• At any time privately under Section 4(a)(7) of the Securities Act to accredited investors
• At any time privately to "Qualified Institutional Buyers" under Rule 144A
• At any time outside the United States in reliance on Regulation S
• To the public under Rule 144, one year after the securities were issued
‍
The exemptions for private sales above all have conditions that have to be met, and the securities remain restricted. There may also be contractual restrictions on such resales or requirements set forth in the company bylaws and state law requirements have to be complied with as well.
‍
Officers, directors, or investors who hold more than 10% of the company's securities, might be "affiliates" and their shares will be subject to additional restrictions on resale. They'll likely need a lawyer to advise them whether these restrictions apply.
‍
In the case of affiliates, the securities are both "restricted" and "control" and investors need to hold them a year from the date on which they got them from the company before can be resold publicly. The ways in which investors can sell publicly are the same as discussed above for non-affiliates. Again, for affiliates there are limitations on the number of shares they can sell at any one time, they'll need to sell through a broker or market maker, they'll have to file a Form 144 with the SEC and "adequate current public information" must be available about the company, which means it must be compliant with Regulation A+ ongoing reporting requirements. If investors want to resell within that year, they'll need to resell them in another private offering, probably limited to accredited or institutional investors.
‍
Once the securities are resold publicly, they are no longer restricted. Warrants are treated the same way as all other securities sold under Reg D.

Venture Capital Funds that use 60% or more in simple debt for certain specialized loan types and 40% or less in equity holdings, can raise capital through Reg A+. The relevant SEC regulations are Sections 3(c)(5)(A) and (B) of the Investment Company Act.
‍
The key requirement to qualify under Section 3(c)(5)(A) or (B) is that the loans or receivables held by the issuer must have been incurred by the obligor to finance the acquisition of specific goods or services and not for general purposes. If an issuer relies on Section 3(c)(5)(A), the loans and receivables held by the issuer must represent all or part of the sales price of merchandise, insurance or services. If an issuer relies on Section 3(c)(5)(B), the credit extended to the obligor must have been used to pay for specific goods or services. The fact that an obligation is secured by eligible property such as machinery and equipment is not by itself sufficient to permit reliance on Section 3(c)(5)(A) or (B).
‍
This is a specialized type of fund, contact us for more details.

Note that the reporting requirements described below apply to companies that complete their Reg A+ offering, and do not list on the NASDAQ, NYSE or the OTCQX. (When companies use Reg A+ to list on the NASDAQ or NYSE, once listed they are required to provide Quarterly audits at the PCAOB level).
‍
Those that list on the QX are required to make management financial reports on a Quarterly basis but are still only required to make an annual audit at US-GAAP level.
‍
Companies that complete their Reg A+ and do not list anywhere (or that list on the OTCQB or on an ATS - Alternative Trading System) have the reporting obligations described below.
‍
Form 1-K - Annual audit
‍
Annual audit on Form 1-K require disclosure and discussion of information regarding business operations, related party transactions, compensation data, beneficial ownership of voting securities, identification of directors, executive officers and significant employees, management discussion and analysis (MD&A), and the audited financial statements for the year ended (at the US- GAAP level). The Annual Audits must include updated information about Regulation A+ offerings conducted in the year covered.
The Form 1-K must be filed within 120 days after the issuer’s fiscal year-end.
‍
Form 1-SA - Semi-Annual report (for companies that are not listed on the NASDAQ or NYSE)
‍
Semi-Annual Reports on Form 1-SA require disclosure and discussion of financial statements covering the applicable six month period, including MD&A using the US- GAAP format. No audit required on the financial statements included in a Form 1-SA.
‍
The Form 1-SA must be filed within 90 days after the end of the first six months of the issuer’s fiscal year-end.
‍
Form 1-U - Current report
‍
Issuers must disclose the following:
• Fundamental Changes.
• Bankruptcy or Receivership.
• Material Modification to Rights of Securityholders.
• Changes in Issuer’s Certifying Accountant.
• Certain Unregistered Sales of Equity Securities.
• Changes in Control of Issuer.
• The departure of key Officers.
‍
The Form 1-U must be filed within 4 business days after the event.  
‍
Form 1-Z - Exit report
‍
When a Tier 1 issuer completes it's Reg A+ it is required to file a Form 1-Z which states the amount of capital raised among other things.
‍
Reg A+ Tier 2 issuers are not required to file a 1-Z report after completing the offering.
‍
The Form 1-Z must be filed within 30 days after the termination or completion of a Tier 1 Regulation A+ offering.

‍
The fastest route is to start preparing to market the offering and start the Form 1-A Filing with the SEC at the same time. Then it is possible to do the first closing (assuming a low funding minimum) about 90 days after starting the SEC filing and the marketing agency. This approach has some cost risk exposure because you discover how appealing your offering is after you start the effort and spend $50k on the legal filing. It has less risk in one important respect - you are less likely to have investor enthusiasm wane after months in the market in TestTheWaters(TM).
‍
You should plan for two to three months marketing your company offering, improving it and making it more and more specific, then getting oversubscribed. You can choose to do all this in parallel with or prior to starting the SEC registration process. Current estimates are that it will take 71 days to get your (completed) Reg A+ filing qualified by the SEC. Then allow from one week up to three months or so for the fundraising itself - longer in some circumstances. It is permitted by the SEC to continue to sell shares for an extended period, and in some cases this is prudent. Bear in mind the marketing costs of staying live mount up!
‍
The primary issue here is how effective the early marketing was in engaging investor interest. With a very large backlog of investor reservations accumulated, it will be a faster process for them to convert their reservations into actual investments.In total, expect that the whole process will take from 4 to 6 months approximately. This allows about one month to TestTheWaters(TM).

Yes. If you form a new corporate entity with properly prepared pro forma financials, then you can raise up to $75 million* per year by doing a Regulation A+ offering.
‍
You can use this method to raise growth capital for the newly independent business. You cannot buy the business using this capital - the spinout or management buyout must occur first, afterwards, you can raise capital to expand the business. The type of company that will find it easiest to raise capital will have attractive pro forma sales and profit history and will be known to a large customer base that is positively disposed to the products or services of the company.
‍
*For businesses that lend themselves to segmenting their market, it may be possible to make multiple offerings by following a similar model to the one that Fundrise has used. Each Reg A+ entity is a standalone business and shares one management service provider. In this way, Fundrise has conducted multiple Reg A+ offerings simultaneously since 2016. So far this model has only been Qualified by the SEC in Real Estate situations, but the SEC may allow the same approach in other business areas.

The audit is delayed and costs far more than expected. Delayed audits are the single biggest logistics reason for Reg A+ offerings to fail. Using big name auditors causes huge costs and they are rarely sensitive enough to the urgency that a small client company has. We recommend that you use high-quality mid-sized audit firms that are more likely to treat your company as a priority and stick to their price.
‍
Your company is not appealing enough to consumer investors.
‍
Weak or inefficient marketing. Excellent marketing is required and the agency doing the work must genuinely believe at the outset that they can deliver low-cost results. If an agent expects that they will have to spend $12 for every $100 of investment money their client receives, then the whole offering will be far too expensive. An agency that believes they can do all that is needed for $3 per $100 of capital raised is far more likely to deliver cost-effective results.

Regulation A+ words you must not use in your marketing, get more guidance from your attorney.
‍
TestingTheWaters(TM) Marketing Bad Words/Sounds/Images Dictionary
‍
This guidance applies to all marketing materials, whether used in TTW or post-qualification marketing.
‍
“Approve”: The SEC doesn’t approve Regulation A offerings, it reviews them and then qualifies them. The SEC requires the Offering Circular to bear a legend which specifically states that the SEC isn’t approving or passing on the merits of the securities offered. Avoid any wording that implies the SEC has approved, signed off on, given the green light, or anything that even hints of approbation or any degree of merit.
‍
“Amazing”: Avoid this and similar over-the-top statements.
‍
“Commit”: A no-no whether you are talking about the potential investor or the issuer. Neither is committing to anything. Avoid any wording that implies that there is an obligation to buy or to sell, even on a conditional basis. There isn’t even an obligation to offer the securities to the person who indicated interest. Alternatives are anything that denotes indications of interest on the part of the potential investor, or an undertaking that the issuer will get more information to the potential investor at the appropriate time. “Soft commitment” is also out.
‍
“Get in on the ground floor”: In TTW, this is problematic if it holds out a promise of getting in the ground floor. There is no assurance that the company will do the offering or that the particular investor will get a chance at investing. Things like “you might have a chance at getting in on the ground floor” or “want to get in on the ground floor?” are better. It’s the promise that the potential investor will get shares that is the problem here. Getting in on the ground floor is less problematic when the company has actually filed with the SEC.
‍
“Golden”: No golden opportunities, or anything else redolent of treasure or riches. “Exciting” opportunities are ok, while golden seems to imply a positive return.
‍
“Invest”: At the TTW stage this is a problem. No-one is investing at the TTW stage. Be especially careful of NEVER using this word on or near the button that you click to indicate interest. Technically this should be something along the lines of “indicate interest” but that’s boring so things like “tell me more,” “support,” “show the love” will work. “Might like to invest in the future” is fine, so long as the word “invest” isn’t highlighted or put in a larger font. Try to make sure that if there is an “indicate interest” button, the General Statement (see TTW Legends) or something like it appears somewhere close, that the potential investor is likely to see.

“Investor”: No-one is an investor until the Offering Statement is qualified by the SEC. They are “potential investors,” “people who have indicated interest,” “supporters” and the like.

“Jackpot”: Nothing that would be appropriate in a casino. Nothing like “ace” either. Gambling-type words (except where the implication is that losing everything is possible) are taboo.

“Mini-IPO”: A Reg A offering is NOT an IPO, mini or otherwise. It is an exempt public offering. In an IPO the company goes through a full SEC review on the basis of a much more extensive set of disclosure requirements, including a more thorough audit in accordance with PCAOB standards. There’s generally an underwriter who acts as a gatekeeper in terms of insisting on a counsel’s opinion as to disclosure, and all parties are subject to a higher level of liability. At the end of the process, there is likely to be a trading market. None of these things are true in a Reg A offering.

“Next Facebook”: Only Mark Zuckerberg can say anything about being the next Facebook (or the next other successful company) and then only in limited circumstances, like he’s setting up something similar, in similar circumstances.

“Now”: Avoid all words and phrases that imply urgency, suggest that the potential investor might miss the boat. No “Invest Now!” or “Invest Today!” Several clients use “Invest Now” buttons, though.

“Once in a Lifetime”: Avoid all hype like this. It sounds both urgent and promising of rewards. Substitute “unique,” “interesting” or even
“uniquely interesting.”

“Promising”: Avoid this word if it’s connected to the possibility of profits or success. Try to use some variant of “potential” instead.

“Profits/profitable”: Do not let the company say anything about future profits to investors, or returns to investors. If there are projections showing that the company itself will make profits, then you can let the company say something along the lines of “if we meet the targets in the projections/if the assumptions in the projections are correct then we could show a profit by 201X”, but make sure that any forward-looking statement of this kind is (a) conditional (“if”, “assuming”, etc.) and (b) is accompanied by the Forward-Looking Information Legend. Do not let the company make statements about profits to investors, or returns to investors or anything along those lines.

“Reserve”: This implies an obligation and is probably as much of a contract problem as a securities law problem. It must be clear there is no commitment. While you can’t say “reserve me $XX worth of shares” it IS ok to say “I would be interested in $XX of shares.” “Register” is a much better word. FINRA member brokers know that FINRA has a problem with this term and generally use the phrase “indicate interest.”

“Save”: If used in phrases like “save some shares for me”, you have all the same problems as “reserve”.

“Success”: Problematic if promising future success or profitability.

“Today”: See “now”.

“Solid”: When used in the context of the company’s prospects or performance, this is problematic. It implies that the company is likely to survive, which startups just aren’t. Suggest other words based on the company’s performance to date, or on the experience of management. Never use “solid” in conjunction with profits. Too vague and promises significant upside.

“Unmatched”: It sounds a bit like “unique” but seems more problematic, because it implies quality or performance. Every investment opportunity is unique, by its nature, but unmatched implies that nothing else is as good.

“Winner”: Nothing that implies certainty of returns.
‍
Forbidden sounds:
‍
Cash register noise.
‍
Upward swooshing noise when accompanied by visual implying upward profit trend or stock price.
‍
Forbidden images:
‍
Currency. No images of people holding dollar bills, waving dollar bills, rolling in dollar bills, and dollar bills in general. This includes no graphics of dollar bills or dollar signs multiplying. Just try to avoid currency (whether paper or coin) completely.
‍
No big graph-style arrows heading upwards unless they reflect the graphic depiction of actual (not projected) results of some kind, and especially not if it looks like some kind of prediction as to revenues or profits or stock price.
‍
Reg A Legends

FORWARD-LOOKING STATEMENT LEGEND: THIS MUST APPEAR ON SLIDE DECK, VIDEO, OR ANYWHERE ELSE THAT PROJECTIONS OR FORWARD-LOOKING INFORMATION IS USED.
THE [OFFERING MATERIALS] MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

GENERAL STATEMENT ABOUT “TESTING THE WATERS”: ADD THIS (OR LINK TO IT) FROM ANY COMMUNICATIONS AND MAKE SURE THAT POTENTIAL INVESTOR SEES THIS (AND PREFERABLY CLICKS TO SHOW THEY UNDERSTAND) BEFORE THEY CAN CLICK ANY INDICATION OF INTEREST BUTTON:
THE COMPANY IS “TESTING THE WATERS” UNDER REGULATION A UNDER THE SECURITIES ACT OF 1933. THIS PROCESS ALLOWS COMPANIES TO DETERMINE WHETHER THERE MAY BE INTEREST IN AN EVENTUAL OFFERING OF ITS SECURITIES. THE COMPANY IS NOT UNDER ANY OBLIGATION TO MAKE AN OFFERING UNDER REGULATION A. IT MAY CHOOSE TO MAKE AN OFFERING TO SOME, BUT NOT ALL, OF THE PEOPLE WHO INDICATE AN INTEREST IN INVESTING, AND THAT OFFERING MIGHT NOT BE MADE UNDER REGULATION A. IF THE COMPANY DOES GO AHEAD WITH AN OFFERING, IT WILL ONLY BE ABLE TO MAKE SALES AFTER IT HAS FILED AN OFFERING STATEMENT WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) AND THE SEC HAS “QUALIFIED” THE OFFERING STATEMENT. THE INFORMATION IN THAT OFFERING STATEMENT WILL BE MORE COMPLETE THAN THE INFORMATION THE COMPANY IS PROVIDING NOW, AND COULD DIFFER IN IMPORTANT WAYS. YOU MUST READ THE DOCUMENTS FILED WITH THE SEC BEFORE INVESTING.

SEC REQUIREMENTS; MAKE SURE THIS INFORMATION HAS BEEN SEEN AND PREFERABLY AGREED TO PRIOR TO PERMITTING POTENTIAL INVESTOR TO INDICATE INTEREST [THIS IS SEC LANGUAGE AND CANNOT BE TWEAKED]:
NO MONEY OR OTHER CONSIDERATION IS BEING SOLICITED, AND IF SENT IN RESPONSE, WILL NOT BE ACCEPTED.
NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE OFFERING STATEMENT FILED BY THE COMPANY WITH THE SEC HAS BEEN QUALIFIED BY THE SEC. ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME BEFORE NOTICE OF ACCEPTANCE GIVEN AFTER THE DATE OF QUALIFICATION.
AN INDICATION OF INTEREST INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND.
[AFTER THE OFFERING STATEMENT HAS BEEN PUBLICLY FILED:]1 AN OFFERING STATEMENT REGARDING THIS OFFERING HAS BEEN FILED WITH THE SEC. [THE PRELIMINARY OFFERING CIRCULAR THAT IS PART OF THAT OFFERING STATEMENT IS ATTACHED] OR 2 [YOU MAY OBTAIN A COPY OF THE PRELIMINARY OFFERING CIRCULAR THAT IS PART OF THAT OFFERING STATEMENT FROM:
[NAME, PHONE NUMBER, ADDRESS] OR
AT WWW.[URL]]
POST-QUALIFICATION. THE SEC REQUIRES THAT OFFERS BE PRECEDED BY OR ACCOMPANIED BY AN OFFERING CIRCULAR, BUT DOESN’T PRESCRIBE LEGEND LANGUAGE. THE FOLLOWING IS DRAFTED BY SPH; THE COMPANY OR ITS ADVISERS ARE ALLOWED TO TWEAK IT:
AN OFFERING STATEMENT REGARDING THIS OFFERING HAS BEEN FILED WITH THE SEC. THE SEC HAS QUALIFIED THAT OFFERING STATEMENT, WHICH ONLY MEANS THAT THE COMPANY MAY MAKE SALES OF THE SECURITIES DESCRIBED BY THE OFFERING STATEMENT. IT DOES NOT MEAN THAT THE SEC HAS APPROVED, PASSED UPON THE MERITS OR PASSED UPON THE ACCURACY OR COMPLETENESS OF THE INFORMATION IN THE OFFERING STATEMENT. YOU MAY OBTAIN A COPY OF THE OFFERING CIRCULAR THAT IS PART OF THAT OFFERING STATEMENT FROM:
[NAME, PHONE NUMBER, ADDRESS] OR AT WWW.[URL]]
YOU SHOULD READ THE OFFERING CIRCULAR BEFORE MAKING ANY INVESTMENT.


1 The bit in asterisks is an instruction, not part of the legend.
2 This is either/or. You can either deliver the OC together with the communication that bears this legend, or link to the OC (more likely). If the OC isn’t being delivered, take out the first bit and just keep the bit that links to the OC.

The primary consideration is the "Market Value of Publicly Held Stock," which essentially means stock in the hands of investors, not insiders. As an example, if your company had pure investors before the offering that held shares valued at $5 mill at the valuation of the Reg A+ offering, then NASDAQ will require that you raise at a minimum $10 mill in the Reg A+. $5 mill + $10 mill = $15 mill.
‍
Nasdaq Capital Market – NASDAQ Listing Requirements

There is no actual limit that we are aware of, to the number of investors. We have been advised by experts* that when an issuing company (the company selling its shares) issues its shares in "Street Name", which means that the shares are held by one stock broker, and represented electronically in the investor's brokerage account, then the stockbroker becomes the single Shareholder of Record for the Reg A+ issued shares, and since Section 12(g) applies to the count of Shareholders of Record, the number limit will not normally exceed the trigger of 500 below.

An issuing company that does not take the step described above, and that exceeds Section 12(g)’s 500 holders threshold and had a public float of less than $75 million as of its most recently completed semiannual period (or for an issuer without a public float, annual revenues of less than $75 million as of its most recently completed fiscal year, would be granted a two-year transition period before being required to register its securities under Section 12(g).

Regulation A+ provides an exemption for securities issued in a Tier 2 offering from the registration requirements of Section 12(g) of the Exchange Act as long as the issuer hires a registered transfer agent, remains subject to and current in its Tier 2 periodic reporting obligations, and had a public float of less than $75 million as of its most recently completed semiannual period (or for an issuer without a public float, annual revenues of less than $75 million as of its most recently completed fiscal year).

*Please consult your attorneys.

Seed Equity CrowdFunding, known as Title III: Startups raising $100k up to $1 mill in seed capital fit the newly expanded equity crowdfunding rules nicely. This means that investors (both accredited and non-accredited individuals) worldwide can now buy shares in your company. The smaller the capital raise, the less demanding the disclosure rules, with break points at $100k and $500k.
‍
Vetted financials are required in many cases, and there will be marketing costs to promote your offering to investors. These costs could range from as low as $10k to the $60k range. The marketing cost will vary greatly depending on who is doing the marketing and how well it is executed. It costs money to get the attention of investors. Marketing agencies cannot charge a percentage fee on capital raised. They have to charge for their services in cash. But the good news is that the cost of reaching investors is far lower than the cost of drawing in Accredited investors if your company appeals to consumers, which is critically important here.

A continuous offering is one where not all the stock offered is sold at the beginning after the offering is qualified. Some stock is reserved for later sale.
To have a continuous offering the company needs to be current in its annual and semiannual report filing at the time of sale.
You can do a continuous offering (1) for selling shareholders, (2) for a dividend or an employee benefit plan of the issuer, (3) for securities issued upon the exercise of outstanding options, warrants, or rights, for securities issued upon conversion of other outstanding securities, (4) for securities pledged as collateral, or (5) securities that are part of an offering which commences within two calendar days after the qualification date, will be offered on a continuous basis, may continue to be offered for a period in excess of 30 days from the date of initial qualification, and will be offered in an amount that, at the time the offering statement is qualified, is reasonably expected to be offered and sold within two years from the initial qualification date. Most companies will use continuous offerings for selling shareholders and stock that will be sold within the next two years after the offering is qualified.

Note that you cannot sell stock into the market in what is called an “at the market offering.” At the market simply means you are entering sell order into the market just as you would if you were an ordinary shareholder holding free trading stock. You cannot just hit the bid. You have to find a buyer.

There is no minimum capital required to be raised for OTCQB/OTCQX listing.
‍
However, since OTCQX companies must pass the SEC’s penny stock test, some may be required to raise enough capital to meet the $5 Million Net Tangible Assets requirement.
‍
As for the number of shareholders, no requirement for OTCQB, but we assume FINRA would have concern approving a new 15c211 if the Issuer has less than 50 shareholders.
‍
For OTCQX, OTC Markets require a minimum of 100 round lot beneficial shareholders.

With a  lower minimum, your offering will be attractive to more investors. And as Registered Investment Advisors (RIAs) get involved and invest their client's savings in Reg A+ offerings, they will need a low minimum so they can spread their client's exposure over a number of companies.
‍
We recommend that you set a low minimum to enable most consumers to invest. If you set your minimum high, you will put off many people, and that could make the difference between success and failure of your offering. One company we follow has a minimum of $95 - this is great for broadening investor appeal.
‍
This is not the same as the share price of your offering, of course.
‍
There are a number of fixed costs per investor that make it financially unattractive to encourage investors to invest very small amounts.

Reg A+ does not allow funding for the following:
• Companies with headquarters outside the U.S. or Canada. It is fine to move or set up the legal headquarters in the US or Canada for international businesses.
• Investment companies as defined by the Investment Company Act of 1940. Pure venture capital firms cannot use Reg A+. VC firms that are Debt based (minimum of 60% debt holdings) are allowed to use Reg A+ in specific circumstances - ask us and your securities attorney.
• Public companies. Reporting and non-reporting public companies are allowed to use Regulation A+.
• Development stage companies with no business plan or purpose.
• Companies issuing fractional, undivided interests in oil, gas, or mineral rights.
• Companies disqualified under the “bad actor” rules.
‍
That’s it. If your company doesn’t fall into one of those exclusions, you’re eligible.