Ben & Jerry’s ice cream preceded SEC’s new Regulation A+ for $50M

The Securities and Exchange Commission (SEC) has finally approved the final rules on the implementation of Title IV of the JOBS Act, more widely known as “Regulation A+”, …

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The Securities and Exchange Commission (SEC) has finally approved the final rules on the implementation of Title IV of the JOBS Act, more widely known as “Regulation A+”,  which paves the way for small businesses and startups to use crowdfunding to raise capital of up to $50 million.

The landmark legislation gives more freedom to SMEs to raise capital for their ventures. The previous version of Regulation A did allow companies to do general solicitations from investors but capped the capital raised just to $5 million. Aside from that, the issuers would have to comply with the mini registration requirements from SEC.  They were also subject to state security laws for every state they will issue their security, thus making the process cumbersome and ineffective.

One of the most famous success stories on the use of then Regulation A offering was by Ben & Jerry’s Ice cream, even with the cumbersome process.  As the newly  approved Regulation A+ Rules of SEC is implemented,  more startups like Ben & Jerry’s are expected to sprout in the business landscape. Read more of their story here.

Under the new rules promulgated by the SEC, the maximum amount of capital solicited is increased to $50 million dollars and the issuer is freed from the burden of complying with state laws. But more importantly, Regulation A+ allows fund raising from the general public unlike Regulation D which is just limited to accredited investors.

For companies that are looking for more capital to meet their working capital needs or fund expansion but do not want yet to risk an IPO then using Regulation A+ is a good alternative.

Scott Andersen, ConsultDA.com Partner1 and General Counsel at FundAmerica says, “The Investment adviser model is superior for many businesses, over a broker-dealer model. It also  provides more options for people to pursue opportunities intended by Congress in enacting the JOBS Act, especially so with the approved Regulation A+. ”

Under the rules there are two tiers that companies should be familiar with.

Scott Purcell, Founder and CEO of FundAmerica, says “Tier 1 requires SEC and state blue sky reviews and fees, can raise up to $20M per year, open to unaccredited investors, and no audit required.”

He further added that “Tier 2 requires SEC review but no state blue-sky review ("preemption"). It can raise up to $50M per year, and also open to unaccredited investors but limited to the greater of 10 percent of income or net worth.  Furthermore, annual audit is required, and must use a registered transfer agent.  FundAmerica will be helping to simplify this for issuers.”

Tier 2 investors cannot purchase more than 10 percent of investor’s annual income or net worth whichever is greater. The SEC, however, allows the issuer to rely on the investor’s representation on the requirement unless the issuers are aware that the representations are not true.

Tier 2 companies would also need to comply with ongoing periodic reports that should be filed electronically in the EDGAR system. The additional reporting requirements would include:

  • Annual Report, within 120 days from the issuers’ fiscal year end
  • Bi Annual (mid – year) report, due within 90 days of the issuer’s second fiscal quarter
  • Current reports, within four (4) business days, should there be fundamental changes in the issuer’s business, bankruptcy, modifications to shareholder rights, changes in the issuer’s accountant or auditor, changes in control, departure of any PEO, PFO or PAO and unregistered shares now account for more than 5 percent of outstanding equity shares
  • Special Financial Reports
  • Reporting of sales upon termination or completion of the offering would be required similar to that for of Tier 1.

While the additional reporting requirements adds administrative work for companies availing of Tier 2, it still doesn’t dilute the overall significance of the rules. This is still a very welcome change, one that could further fuel growth in the economy.


¹IN FULL DISCLOSURE, SCOTT ANDERSEN AND I RECENTLY FORMED AND ARE PARTNERS IN A SECURITIES COMPLIANCE CONSULTANCY FOR BROKER-DEALERS, INVESTMENT ADVISERS AND OTHER FINANCIAL INSTITUTIONS: CONSULTDA.COM.

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