State Securities Law Issues in Regulation A+ Offerings

By: Jim Verdonik

Jim Verdonik

Founder of Innovate Capital Law

http://InnovateCapitalLaw.com/

Contact me at:

JimV@InnovateCapitalLaw.com

(919)616-3225

 I write a column about business and law for American Business Journals, have authored multiple books and teach an eLearning course for entrepreneurs.  You can check out my newspaper articles at http://www.bizjournals.com/triangle/search/results/_author/Jim+Verdonik?market=triangle&_author=Jim+Verdonik&title=

or my eLearning course http://www.youtube.com/user/eLearnSuccess or you can purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW

The most controversial issues related to new Regulation A+ relate to state securities laws.

Issuers, their legal counsel and investment bankers wanted all Regulation A+ offerings to be exempt from state registration.

State securities administrators wanted all Regulation A+ offerings to be subject to state registration.

The SEC compromised by exempting Tier 2 Regulation A+ offerings from state registration laws, but the SEC did not extend the same protection to Tier 1 Regulation A+ offerings.

There are two likely results of this compromise:

·         Many issuers who raise less than $20 million (and so could choose to be governed by the Tier 1 rules) will choose to be governed by the Tier 2 rules.

·         Other issuers will continue to do Rule 506 offerings, which are except from state registration laws.

Let's explore why people are likely to make these choices.

Regulation A+ offerings involve conducting a general solicitation.  General solicitations (a/k/a public offerings) are regulated by both state and Federal securities laws. 

Compliance with Federal law doesn't always constitute compliance with state law.  Compliance with the laws of one state doesn't always mean you comply with the laws of all states.

How do state laws apply to Regulation A+ offerings?

• Regulation A+ gives you an exemption from registration of the offering at the Federal level like in a Rule 506 offering or a Federal registered offering of securities by an issuer listed on a national securities exchange.
• The Tier 2 of Regulation A+ pre-empts state registration laws. 
• The Tier 2 pre-emption of state registration does not apply to state anti-fraud rules or to certain post-closing notices and filing fees many states require.
• Tier 1 of Regulation A+ does not preempt state registration laws.
• Regulation A+ does not preempt state broker-dealer, salesmen or investment adviser laws that may adversely impact issuers who use unregistered intermediaries.
• More than one state law may apply.  Generally, the laws of the issuer's home state and every state where offers or sales are made applies to securities offerings.

Microcap Financings: Regulation A+ Offerings Join Public Shell Company Mergers and Self-Registrations to Create Small Public Companies

                                                                                                                                            

By: Jim Verdonik

Jim Verdonik

Founder of Innovate Capital Law

http://InnovateCapitalLaw.com/

Contact me at:

JimV@InnovateCapitalLaw.com

(919)616-3225

You can check out my newspaper articles at http://www.bizjournals.com/triangle/search/results/_author/Jim+Verdonik?market=triangle&_author=Jim+Verdonik&title=

You can purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW

Title IV of the JOBS Act directed the Securities and Exchange Commission to issue a new regulation A with higher offering limits and other provisions that make the new Regulation A more attractive to issuers.  The new Regulation A has been nicknamed Regulation A+, because it permits you to raise more money with fewer restrictions than in old Regulation A.. 

On March 25, 2015, the SEC issued final rules for Regulation A+ in Release No. 33-9741.

In this article, we'll discuss how you can use Regulation A+ to become a microcap public company and the advantages  and disadvantages of using Regulation A+ compared to merging with a public shell company or doing a self-registration without an underwriter.

Legal Eligibility to Use Regulation A+

Let's briefly list the types of issuers who are legally allowed to conduct Regulation A+ offerings:

• U. S. and Canadian companies;
• That conduct an active business or that will use the proceeds of the offering to purchase an active business that is identified in the offering disclosure documents;
• That are not yet public reporting companies or registered investment companies; and
• That have not committed a list of securities violations specified in Regulation A+'s Bad Actor rules.

Now, let's talk about how Regulation A+ compares to two other types of transactions that sometimes attract similar types of businesses.

Regulation A+'s Sweet Spot

Regulation A+ offerings can help you achieve many of the same business objectives that in the past were the goals of companies that did mergers into public shell companies or did self-registrations without an underwriter.

This article compares the advantages and disadvantages of three types of transactions both to raise capital and to become publicly traded companies:

• Regulation A+ Offerings.
• Merging into a public shell company.
• Self-registration without an underwriter. 

Either merging into a public shell or a self-registration can be combined with a Rule 506 offering or other exempt offering as a way to raise money and become public without doing a traditional IPO through a firm commitment underwritten registered public offering.  Often, shares are registered for re-sale by investors from a prior private placement offering.  Companies often make contractual commitments to investors in the earlier private offering to become public by registering their shares for re-sale or by merging into a public shell followed by a re-sale registration within a specified time period after the earlier private offering.

Desired Results

But most people care less about process than the results they achieve.  Let's examine three different pathways to achieving the following results:

·         Raise up to $50 million

·         Give investors in the offering the ability to re-sell shares to the public.

·         Create a trading market for all shareholders.

Table 1 below identifies the specific steps each pathway (Regulation A+, public shell mergers and self-registrations) requires to help businesses raise capital, give investors the legal ability to re-sell shares and create a public market. 

Although Table 1 below compares Tier 2 Regulation A+ Offerings to public shell mergers and self-registrations, we shouldn't assume that Tier 2 offerings are always a better choice than Tier I offerings.  Tier 1 Regulation A+ offerings can help you achieve many of the same things a Tier 2 offering does.  Or a Tier 1 offering may be a useful step toward later doing a Tier 2 offering. 

In another article, we discuss how Tier 1 ofRegulation A+ differs from Tier 2, the goals they can each help you achieve and how to choose between doing a Tier 1 offering or a Tier 2 offering.

Why Choose? Why Not Do Both A Rule 506 Offering Followed by a Regulation A+ Offering?

 By: Jim Verdonik

Jim Verdonik

Founder of Innovate Capital Law

http://InnovateCapitalLaw.com/

Contact me at:

JimV@InnovateCapitalLaw.com

(919)616-3225

Check out my newspaper articles at http://www.bizjournals.com/triangle/search/results/_author/Jim+Verdonik?market=triangle&_author=Jim+Verdonik&title=

The SEC approved new Regulation A+, which the SEC approved New Regulation A+ on March 25, 2015 in SEC Release No.33-9741.

More than 1,000 Rule 506 offerings occurred each year for each offering that used the old Regulation A.

For several decades, SEC Rule 506 has been the most common way for small to mid-sized companies to raise capital.  In 2013 the SEC permitted businesses to make a general solicitation in offerings that comply with Rule 506 (c). 

So, the big question is:  Why should you do a Regulation A+ offering instead of a Rule 506 offering?

The short answer is that many more issuers will continue to choose to do Rule 506 offerings than Regulation A+ offerings.  That's because most issuers usually have simple goals:

·         Raise money.

·         Raise money quickly.

·         Raise money cheaply with low transaction costs.

If these short-term goals are your only concern, then Rule 506 will continue to be your best alternative. 

The other reason more businesses will use Regulation A+ is that most companies can't attract the large amount of capital that Regulation A+ allows you to raise.  It doesn't make sense to do a Regulation A+ offering is all you want or can raise is $1 million, because of transaction expenses.

Regulation A+ offers the following benefits to both businesses and their shareholders:

·         The legal ability to raise large amounts of capital.

·         Potentially higher valuations, because you can sell to both accredited investors and unaccredited investors and you are not selling "restricted securities."  Investors can legally re-sell unrestricted securities immediately, unless the investor is an affiliate of the issuer.

·         The ability of founders and other insiders to sell some of their shares in the offering

·         The ability to begin to develop a trading market for your shareholders to gain liquidity.

For businesses that want these benefits, doing a Regulation A+ offering vs. a Rule 506 offering probably requires paying higher transaction expenses and a slightly longer time to close the transaction. 

Comparing Rule 506 to both Tier 1 and Tier 2 of New Regulation A+

The two tables below compare key provisions of Rule 506 to both Tier 1 and Tier 2 of new Regulation A+ that create the advantages and disadvantages summarized above.

• Table 1 below describes advantages and disadvantages during the offering process.
• Table 2 below describes post-offering factors that could affect your decision whether to use Rule 506 or Regulation A+.

Table 1 below clearly shows that Rule 506 offers short term advantages over Regulation A+ with respect to both the timing and the expenses of the offering process. 

But Regulation A+ offers two primary advantages over Rule 506 during the offering process:

• The ability to both offer and sell securities to unlimited numbers of both accredited investors and unaccredited investors
• The ability of company founders and other insiders to re-sell some of their shares in the offering. 

Table 2 below shows that Regulation A+ also offers issuers who want to develop shareholder liquidity and a trading market that rue 506 dies not provide.

These Regulation A+ advantages are important, because the ability to sell to all types of investors and the investor liquidity advantages can help some businesses achieve higher valuations in Regulation A+ offerings than in Rule 506 offerings.

Why Choose?  Why Not Get the Best of Both Rule 506 and Regulation A+?

Like many things in life, you often face a choice between short-term and long-term needs.

But why should you have to choose?

Why can't you have your cake and eat it too?

If your business needs money quickly, why not:

• Raise the money your business needs for the next six months by doing a small Rule 506 offering?
• Then, use part of the Rule 506 offering proceeds to pay the expenses for a bigger Regulation A+ offering at a higher valuation.

Integration Issues

Regulation A+ allows you to combine two offerings as part of a single plan, because Regulation A+ provides that Regulation A+ offerings will not be integrated into any prior offerings.  That means you can start your Regulation A+ offering as soon as you close your Rule 506 offering.

Rule 506 doesn't offer the same flexibility.  Because of integration issues, you probably need to wait for six months after you complete a Rule 506 (b) offering before you can start making offers under a Rule 506 (c) offering, unless your Rule 506 (b) offering fully complies with Rule 506 (c) rules, including taking reasonable steps to verify that all your investors are accredited investors.

The added benefit of doing a small Rule 506 (b) offering and soon after doing a Regulation A+ offering is that most of the time and expenses you incur doing your Rule 506 offering will be for things you would have to do for the Regulation A+ offering.  You can re-use these things in your Regulation A+ offering.  So, your Regulation A+ offering will be faster and cheaper than if you had not done the earlier Rule 506 offering.

Under this two-step capital raising plan:

·         You get the money you need fast and at low transaction cost.

·         Your average valuation for shares sold in the two offerings will probably be higher than if you only did one big Rule 506 offering.

·         You can increase shareholder liquidity alternatives.

·         You can prepare yourself to become a publicly traded company by taking small steps in that direction.

Now, let's jump into the details that describe the advantages and disadvantages of Rule 506 and Regulation A+.

Which Should You Choose: Tier 1 or Tier 2 of Regulation A+?

                                                                                                                                            

By: Jim Verdonik

Jim Verdonik

Founder of Innovate Capital Law

http://InnovateCapitalLaw.com/

Contact me at:

JimV@InnovateCapitalLaw.com

(919)616-3225

Check out my newspaper articles at http://www.bizjournals.com/triangle/search/results/_author/Jim+Verdonik?market=triangle&_author=Jim+Verdonik&title=

Title IV of the JOBS Act directed the Securities and Exchange Commission to issue a new regulation A with higher offering limits and other provisions that make the new Regulation A more attractive to issuers.  The new Regulation A has been nicknamed Regulation A+. 

On March 25, 2015, the SEC issued final rules for Regulation A+ in Release No. 33-9741.

Summary of Primary Differences in Tier 1 and Tier 2 Regulation A+ Offerings

There are two types of Regulation A+ offerings: Tier 1 and Tier 2. If you want to do a Regulation A+ offering, should you choose Tier 1 or Tier 2?

• Tier 1 offerings allow you to raise up to a maximum of $20 million during any rolling 12-month period from both accredited investors and non-accredited investors with no maximum limit on the amount any individual investor can purchase.  Of that $20 million maximum, up to $6 million can be re-sales by shareholders who are affiliates of the issuer during any 12 month period.  State registration laws are not pre-empted for offers or for sales.  Issuers do not have any post-offering requirements to file periodic reports with the SEC.

• Tier 2 offerings allow you to raise up to a maximum of $50 million during any rolling 12-month period.  Of that $50 million maximum, re-sales by shareholders who are affiliates of the issuer are limited to $15 million during any 12-month period, except that for the first offering and all offerings during the first year, the offering price for affiliate re-sales cannot exceed 30% of the total offering price in the offering. State registration laws are pre-empted for offers and for sales. Non-accredited investors can invest in a Tier 2 offering, but only up to 10% of the greater of the investor's net worth or annual income, unless the securities will be registered on a national securities exchange.  Self-certification by the investor is permitted.  The issuer can accept the investor's representation about the amount the investor is allowed to invest in the offering, unless the issuer knows the representation is false.  Tier 2 issuers are required to file semi-annual reports with the SEC, until the issuer no longer has 300 record owners of shares.  But Tier 2 issuers who qualify as "smaller reporting companies" have an exemption from full 1934 Exchange Act reporting requirements even if they exceed Section 12 (g)'s registration triggers (2,000 record shareholders or more than 500 non-accredited investors).

Differences in Trading Markets for Tier 1 and Tier 2 of Regulation A+

Tier 2 rules facilitate trading on the Over-the-Counter Bulletin Board by allowing brokers to satisfy Rule 15c2-11 by relying on periodic reports Tier 2 issuers must file.  Tier 2 rules also encourage Tier 2 issuers to graduate to a national securities exchange by filing a Form 8-A, which is easier to use than a Form 10.

Trading in the shares of Tier 1 issuers is likely to be limited to trading on private platforms, because Tier 1 issuers are not required to file periodic reports with the SEC.  SecondMarket and SharePost are two examples of platforms that facilitate re-sales of securities of private companies.  These private trading platforms have focused on larger private companies.  But many platforms that sell securities in Regulation A+ offerings, Rule 506 (c) offerings and state crowdfunding offerings will be able to facilitate secondary market trading on their platforms.

The SEC has also indicated that it is considering permitting the creation of "venture exchanges" to facilitate secondary market trading, including for Regulation A+ issuers.  Such venture exchanges are likely to be modeled on the London AIM Exchange and the Canadian TSX Venture Exchange.  Future access to such venture exchanges could become an advantage for Regulation A+ issuers.

Interaction with Other SEC Re-Sale Provisions

Let's consider the rules that apply to re-sales of shares by three types of shareholders:

• Investors who repurchase shares in the Regulation A+ offering who are not affiliates of the issuer before or after the purchase.
• Affiliates of the issuer who own restricted securities or control securities.
• Non-affiliate shareholders who did not purchase their shares in the Regulation A+ offering.

Investors purchase unrestricted securities in both Tier 1 offerings and Tier 2 offerings under Regulation A+.  Therefore, unless the investor is an affiliate of the issuer, the investors who purchase shares in the Regulation A+ offering can re-sell without complying with Rule 144.  Affiliates must comply with Rule 144 or another exemption when they re-sell even if they acquire unrestricted securities, because shares held be affiliates become "control securities."

Following both Tier 1 offerings and Tier 2 offerings under Regulation A+, the issuer is a private company that does not file full 1934 Exchange Act periodic reports.  Consequently, the private issuer provisions of Rule 144 apply to re-sales by shareholders who did not purchase shares in the offering.

Three things affect the ability of the issuer's shareholders to re-sell under Rule 144:

• In Tier 2 officers, an issuer who files the annual and semi-annual periodic reports required by Tier 2 of Regulation A+ can facilitate shareholders re-selling shares by voluntarily filing two extra quarterly reports.  See Page 186 of SEC Release No. 33-9741.
• Private companies (including Tier 1 and Tier 2 Regulation A+ issuers) can facilitate re-sales under Rule 144 by posting on their websites the information referred to in Rule 15c2-11(a)(5)(i) to (xiv) and (xvi).
• The public information requirements of Rule 144 (c) always apply to shares owned by affiliates of the issuer, but non-affiliates who have held their restricted securities for more than one year can re-sell shares can under Rule 144 without current public information of the issuer being available.

That describes the legal pathway for shareholders to re-sell shares.  Whether an actual market develops for shares that shareholders want to resell depends on many factors.  However, as more investors register with platforms to purchase shares in primary offerings by issuers, one can expect the platforms will generate revenue by facilitating secondary market trading by both buyers and sellers.

Therefore, both Tier 1 and Tier 2 of Regulation A+ offer the opportunity to create some liquidity for shareholders before sale of the company or before becoming a full 1934 Exchange Act company.

Other articles about important Regulation A+ issues include the following:

Summary of Key Provisions of New Regulation A+	http://jimverdonikintersection.blogspot.com/2015/05/summary-of-key-provisions-of-new.html
Is Title III Crowdfunding Already Obsolete? Regulation A+ = Supercharged Crowdfunding	http://jimverdonikintersection.blogspot.com/2015/05/is-title-iii-crowdfunding-already.html
Your Goals Will Determine Whether Regulation A+ Is Right for Your Business	http://jimverdonikintersection.blogspot.com/2015/05/your-goals-will-determine-whether.html
Why Choose?  Why Not Do Both A Rule 506 Offering Followed by a Regulation A+ Offering?	http://jimverdonikintersection.blogspot.com/2015/05/why-choose-why-not-do-both-rule-506.html
Microcap Financings: Regulation A+ Offerings Join Public Shell Company Mergers and Self-Registrations to Create Small Public Companies	http://jimverdonikintersection.blogspot.com/2015/05/microcap-financings-regulation.html
State Securities Law Issues in Regulation A+ Offerings	http://jimverdonikintersection.blogspot.com/2015/05/state-securities-law-issues-in.html

Your Goals Will Determine Whether Regulation A+ Is Right for Your Business

By: Jim Verdonik

Jim Verdonik

Founder of Innovate Capital Law

http://InnovateCapitalLaw.com/

Contact me at:

JimV@InnovateCapitalLaw.com

(919)616-3225

Check out my newspaper articles at http://www.bizjournals.com/triangle/search/results/_author/Jim+Verdonik?market=triangle&_author=Jim+Verdonik&title=

The SEC approved Regulation A+ on March 25, 2015 in SEC Release No. 33-9741.

Regulation A+ occupies a middle ground between Rule 506 offerings and registered public offerings.

This article answers two questions:

• Who would want to do a Regulation A" offering?
• Why would they want to do a Regulation+ offering?

The first response to any new rule or regulation should always be:

• Does this change affect me?
• Is the change a threat or an opportunity?
• How should I change what I normally do to adapt?
• How do I take advantage of the opportunity?
• How do I protect myself from the threat?

Regulation A+ Opportunities

Regulation A+ doesn't harm any business and will help businesses that:

• Are among the large group of businesses that are legally eligible to use Regulation A+.
• Have a compelling business case that can attract medium to large amounts of capital (up to $50 million).
• Have specific business objectives that specific features of Regulation A+ can help achieve.

What Won't Regulation A+ Help You Do?

Regulation A+ offerings:

·         Won’t be very useful for raising seed and early-stage capital, because of the time aqnd expense.

·         Won't replace big underwritten IPOs.

Profile of Regulation A+ Issuers

Let’s develop a profile for companies that should seriously consider a Regulation A+ offering. 

2014 JOBS Act Update: Some Assembly Still Required

By Jim Verdonik

I'm an attorney with Ward and Smith PA. I also write a column about business and law for American Business Journals, have authored multiple books and teach an eLearning course for entrepreneurs. You can reach me at JFV@WardandSmith.com or JimV@eLearnSuccess.com. Or you can check out my eLearning course at http://www.elearnsuccess.com/start.aspx?menuid=3075 or http://www.youtube.com/user/eLearnSuccessor or you can purchase my books at http://www.amazon.com/Jim-Verdonik/e/B0040GUBRW

Thanks for contributions to this update from my partner Knox Proctor.

The Jumpstart our Business Startups ("JOBS") Act was a bipartisan effort to create jobs by making it easier for start-up companies to deal with securities laws when raising capital.  It was signed by the President on April 5, 2012.  Most of the Act's provisions require the Securities and Exchange Commission ("SEC") to enact rules to implement those provisions before they become effective. 

Did you ever buy a Christmas toy for your children that had on the box the dreaded words: "Some Assembly Required?" 

If so, then you will understand the current status of the JOBS Act several years after passage:

-          Some parts appear to work as intended.

-          Some parts seem to be missing.

-          We have some extra parts that don't appear to belong anywhere.

-          The assembly instructions were not written by native English speakers.

The excitement of unwrapping the present wears off if there is a long assembly process with bumps in the road.

If you cannot get your Christmas gift assembled and in full working order before Christmas dinner, you begin to wonder:

-          Is the product defective?

OR

-          Are you just a dysfunctional assembler?

The three year delay in implementing major parts of the JOBS Act is caused in part by both poor design and an assembler that would really rather be doing something else.

Let's talk about our reluctant assembler first.

The SEC missed all the statutory deadlines for proposing rules.  So far only one of the SEC's proposed rules has become effective.  That's an impressive delay strategy success rate.  A football team trying to hold onto a lead that is winding down the clock could learn a lot from the SEC.  But the SEC is fighting a losing battle.  The Internet and Social Media won't disappear.  There is no two minute signal before the game ends.  The influence of Internet and Social Media grow stronger as these tools permeate our lives while the SEC's delay and out dated interpretation of the securities laws seem more foolish day after day.  Recently, the SEC had to surrender to Twitter by permitting issuers that use Twitter or any other technology that limits the space you can use to link to other documents that contain required SEC legends that are too long to fit the technology space limitations.  For example, Twitter's 140 character limit.

Temporary delays can be put in the past. 

The primary issue is that some of the SEC's proposed rules (or statements about what the SEC thinks the JOBS Act means) threaten to so substantially limit the practical usefulness and cost efficiency of some JOBS Act offerings that the purposes of the JOBS Act may not be achieved.

Not all the JOBS Act's problems can be blamed on a reluctant SEC.  The SEC has been able to take positions that frustrate the purposes of the JOBS Act, because the statute contains a number of ambiguities.  In other instances, Congress built in to the statute provisions that make the JOBS Act very cost inefficient for businesses that are trying to raise capital.

Part of the problem was just poor draftsmanship.  But the other driving force was that Congress was split between two goals: increasing the efficiency of capital raising by small to mid-sized businesses to defend against allegations by critics that investor protection is being abandoned.  Investor protection forces in Congress contributed substantially to the confusing language and unreasonable conditions, which the SEC is relying on to create restrictive rules.

Before we leave the subject of investor protection, let us remember that the JOBS Act did not change any anti-fraud rules.  What was fraud before the JOBS Act remains fraud after the JOBS Act.  The primary purpose of JOBS Act is to allow information to be disseminated into the market using 21st Century technology that most people use every day for both business and in their personal lives.

Yes, new technologies will be used to commit fraud.  But old media and personal contacts were also used to commit fraud.  No system is perfect as long as fools and their money are soon parted.  But any system that tries to always protect us from our foolish selves will unnecessarily interfere with the ability of honest businesses to raise capital.

If we do not change the definition of fraud, advocates of change in securities laws should remember that more information delivered to more people faster and cheaper in the open where everyone can see it is the best anti-fraud investor protection system. 

Before we review the current status of the JOBS Act and existing and proposed implementation rules, we should note that Congressional Committees are working on changes to the JOBS Act.  Some of these changes are required to clarify ambiguous language in the original JOBS Act.  Other changes are necessary to offset SEC interpretations of the JOBS Act and implementation rules that threaten to negate many of the JOBS Act's intended benefits.

Notwithstanding our criticisms of some unnecessary restrictions, we should note that the JOBS Act has already helped many issuers raise capital.  Rule 506 (c) offerings that use general solicitations are growing in number and size.  Likewise, many issuers have benefitted from the new confidentiality and other rules that govern IPOs and 1934 Act reporting by emerging growth companies.  These are substantial beneficial changes that should not be overlooked in our zealousness to make capital raising regulations reasonable and cost efficient in light of 21st Century technology and communications tools and practices.

Although we are giving an updated overview of JOBS Act developments, it is important to note that most of the provisions in the JOBS Act are not yet effective.  We will provide a further update when all final regulations are in place.  Note that you will need to consult with a knowledgeable securities lawyer before you try to take advantage of any of these provisions. 

Overview of the JOBS Act

The JOBS Act is a wide ranging piece of legislation that amends multiple sections of both the Securities Act of 1933 and the Securities Exchange Act of 1934.  Some Sections of the JOBS Act became operative when the statute was enacted.  Other Sections of the JOBS Act instructed the Securities and Exchange Commission to write rules implementing these sections.

We discussed above that the fundamental purpose of the JOBS ACT was to unleash the power of 21st Century communications systems in capital raising.  The JOBS Act also tries to make it less burdensome for smaller companies to become publicly-held and remain publicly-held.  Conversely, the JOBS Act allows smaller businesses to remain private even if they have a relatively large number of shareholders.

The following table summarizes the primary provisions of the JOBS Act as well as their current regulatory status and some of the primary issues related to using these provisions.

JOBS ACT SECTION	DESCRIPTION	CURRENT STATUS AND ISSUES
Section 201(a)	Rule 506 Private Offerings General Solicitation and Advertising –– Allows general solicitation and advertising of Rule 506 (c) private offerings that are exempt from registration, if an issuer takes reasonable steps to verify that all investors are "accredited investors."	Initial SEC Rules approved July 10,  2014 in Release No. 33-9415;34-69959 and became effective September 23, 2014. SEC proposed additional rules on July 10, 2013 in Release No. 33-9416; 34-69960 The initial SEC rules represent a fair attempt to implement Congressional intent to promote capital-raising. Investor verification rules are being implemented without undue burdens and both the number and size of Rule 506 (c) offerings are growing month by month as more people recognize the benefits. Proposed SEC rules regarding changes to SEC Form D and filing all communications with the SEC on the date they occur impose impractical burdens that will make it difficult and more expensive for young businesses to comply with the rules thereby exposing companies to liability risk.
Section 201 (c)	Broker-Dealer Registration Exemption - Affords exemptions from the requirement to register as a broker under Section 15 (a) (1) of the Exchange Act to technology platform operators and people who co-invest in issuers.	Became effective immediately. SEC has not proposed any rules, but the SEC has issued statements in FAQs that indicate the SEC believes technology platforms that sell securities in Rule 506 offerings can only be operated by registered broker-dealers and venture capital funds. The primary legal issue is whether technology platform operators should be treated like (i) media outlets or telecommunications system operators who provide technology enabled services that permit others to offer and sell securities or (ii) as a broker who actually effects offers and sales of securities. Should technology platform operators be treated more like Merrill Lynch or more like Comcast or Verizon or the Wall Street Journal?
Title III Sections 301 to 305	Crowdfunding" –– Allows companies to obtain limited investments (up to $1 million per issuer per year and up to $10,000 per investor per year) from the general public (both accredited and non-accredited investors) without registration, but through strictly regulated crowdfunding platforms. Rules regulate both the issuers raising capital and crowdfunding platform operators.	SEC proposed rules on October 23, 2013 in Release No.33-9470; 34-70741. Rules not yet effective. Primary issues with rules include" -          Requiring reviewed and audited financial statements increases offering expenses to a high percentage of the $1 million annual limit per issuer. -          Requiring annual filings with the SEC creates ongoing expense and loss of confidentiality for issuers. -          Limits in fees operators can charge and ownership of issuers by platform operators limits operator profits. -          Limiting off-platform communications by issuers impedes the sales efforts. -          Prohibiting platform operators from making recommendations limits usefulness to investors who seek to find the best investment opportunities.
TITLE V Section 501 to 504	Exchange Act Triggers - Increases the maximum number of record shareholders that, when exceeded, trigger registration and ongoing reporting requirements under the '34 Act.	Rules are working as intended.
TITLE IV Sections 401 to 402	"Small Offerings –– Regulation A+" –– Provides exemptions for certain smaller offerings of securities.   Primary change is to create different rules for (1) offerings up to $5 million and (ii) offerings up to $50 million (including $15 million of shareholder e-sales).  Also exempts the offering from certain state securities laws. Regulation A offerings were limited to $5 million and most issuers utilized the more flexible Rule 506 offerings, which has always provided exemption from certain state securities laws. Advantages of Regulation A compared to Rule 506 offerings include the ability to sell to persons who are not accredited investors and the securities investors receive are not "restricted securities," which makes re-sale easier if there is a trading market.	SEC proposed rules on December 13, 2013 in Release No.33-9497; 34-71120 Not yet effective. Primary issue will be whether Regulation A can compete with: the flexibility of Rule 506 (c) offerings or the traditional IPO process. May be most useful for small public companies that have some trading volume, because the securities are not restricted.
Title I Sections 101 to 108	"IPO On-Ramp" –– Grants relief for "Emerging Growth Companies" in initial public offerings ("IPOs") and in their subsequent reporting and compliance obligations.	Currently effective and has been utilized by most companies that have done IPOs since it became effective.

We will address each of these provisions summarized above in greater detail in this article in the order listed in the table. 

For a comparison between the new rules and other securities exemptions, check out my blog post:

http://jimverdonikintersection.blogspot.com/2013_10_01_archive.html