For those of you who have been following JOBS Act final rulemaking, Regulation A+, allowing companies to conduct an IPO up to $50 million at reduced initial and ongoing expense compared to a traditional IPO, today was another important milestone.
As has been widely publicized, the SEC approved Final Rules on March 25, 2015. However, the Final Rules do not become effective until 60 days following their publication in the Federal Register. Today the Final Regulation A+ rules were published in the Federal Register, so they will become effective on June 19, 2015.
With Title II of the JOBS Act in full swing, allowing general solicitation for “private placements” to accredited investors, small and emerging businesses now have a broader path to achieve their capital funding needs. Though Title II, embodied in Rule 506(c), can be an extremely attractive option, with no mandatory disclosure or SEC registration, and no dollar limits on the amount raised, many companies will find Regulation A+ to be a useful step as they grow and expand their operations.
Though Regulation A+ involves an SEC registration process, investors in a Regulation A+ offering will receive freely tradable securities. From a company’s perspective, this factor alone can make it easier to attract investors who are otherwise unwilling to be locked up indefinitely, and in most cases issuers can expect to receive a higher valuation for liquid, vs. illiquid securities acquired in a private placement. Regulation A+ also allows companies to include unaccredited investors in the offering.
And the cost of a Regulation A+ IPO will normally be significantly less than a traditional IPO. Unlike a traditional IPO, issuers may rely on auditors who are not registered with the federal PCAOB, a factor which can bring down accounting costs significantly. And listing fees on the OTC Market are a fraction of those on a national exchange, such as Nasdaq or NYSE.
Legal fees can also be expected to be substantially below those incurred in a traditional IPO. The SEC estimates that legal fees incurred by an issuer can be expected to average 40% below those incurred in a traditional IPO. And firms such as mine, which concentrate on representing SME’s, including smaller public companies, are able to provide quality representation in the registration process for less than $50,000.
With the JOBS Act now providing even more opportunities than ever for SME’s to raise capital, the starting point for any company or advisor considering financing options should be an experienced corporate/securities attorney who is not only up to date on the law, but also knowledgeable on the practical aspects of raising capital in the post-JOBS Act world. For those of you who would like additional information I encourage you to contact me at sguzik@guziklaw.com.
