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Background on Form 1-A
On March 25, 2015, the Securities and Exchange Commission substantially expanded Regulation A, which provides scaled down disclosures to nano-cap stocks and companies in early stages of development, by adopting final rules which facilitate capital-raising. Regulation A+, which represents the expansion of Regulation A, consists of two tiers of securities offerings:
- Tier 1 – Public offerings of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security holders that are affiliates of the issuer
- Tier 2 - Public offerings of up to 50 million in a 12-month period, with not more than 15 million in offers by selling security-holders that are affiliates of the issuer
In order to conduct such offerings, issuers that qualify for this type of securities transaction must file an offering statement known as Form 1-A, which is incorporated by three different parts. Part 1, which includes general information about the issuer, requires the disclosure of certain items such as Bad Actor Certification, Issuer Eligibility, Summary Information, Jurisdictions, and Unregistered Offerings.
Part 2, which includes the primary disclosure document that relates to the offering circular, provides two alternative formats to prepare narrative disclosures of which issuers must select only one. In addition, required disclosure items include a Cover Page, Table of Contents, Risk Factors, Dilution, Plan of Distribution, Use of Proceeds, Business, Property, MD&A, Directors, Executive Officers and Significant Employees, Executive Compensation Data, Security Ownership, Related Party Transactions, Securities, Bad Actor Disclosure, and Financial Statements.
Part 3, which contains certain documents that have been filed as exhibits to the offering statement, discloses the Underwriting Agreement, Charter & By-Laws, Instrument Defining the Rights of Security Holders, Subscription Agreement, Voting Trust Agreement, Material Contracts, Plan of Acquisition – Reorganization – Arrangement - Liquidation or succession, Escrow Agreements, Consents, Opinion Regarding Legality, "Testing the Waters" Materials, Appointment of Agent for Service of Process, Materials Related to Non-Public Submissions, and any other exhibits the issuer may want to include.
Eligible issuers who have not previously sold any securities pursuant to an offering statement under Regulation A or an effective registration statement under the Securities Act, have the option to submit a non-public draft of their offering statement for the SEC's review. Issuers may start selling securities pursuant to Regulation A once the Commission provides a qualification to the offering statement. Non-public submissions must be filed on the EDGAR system for public review no less than 21 calendar days before the qualification of the offering statement becomes active.