Updated Compliance & Disclosure Interpretations address Regulation A filing requirements

The SEC’s Division of Corporation Finance on March 31, 2017, updated its Compliance & Disclosure Interpretations (C&DIs) to address the filing requirements for securities offerings using Regulation A under the Securities Act of 1933.

In the update to Compliance & Disclosure Interpretations: Securities Act Rules, the SEC staff seeks to clarify several technical issues surrounding the Reg A exemption, which was overhauled as part of the JOBS Act.

C&DIs are presented in a question and answer format. Several of the questions in the most recent update surround the particulars of Form 1-A, a registration statement used in connection with Reg A offerings.

Regulation A allows privately held companies to conduct small scale public offerings of as much as $50 million, with a lighter accounting and disclosure load than a full-fledged initial public offering. The exemption provides two variants: “Tier one” offerings can run as high as $20 million, but are subject to state “blue sky” securities regulations. “Tier two” offerings of as much as $50 million are exempt from blue sky requirements, but are subject to more stringent federal disclosure requirements.

Prior to the JOBS Act, Reg A offerings were limited to $5 million and were subject to state regulations. In 2015, the SEC issued its JOBS Act-mandate revamp in Release No. 33-9741, Amendments to Regulation A.

One question in the C&DI update asks whether an issuer that qualifies for a tier two offering statement but withdraws it before selling any securities can suspend its reporting obligation by filing a Form 1-Z, even if it has not previously filed an annual report. A Form 1-Z exit report is used by a Reg A issuer to suspend its filing duties.

The SEC said it would not object to an issuer suspending its reporting obligation using Form 1-Z in cases where the offering is validly withdrawn before any sales occur and before the filing of an annual report under Regulation A or the Securities Exchange Act of 1934.

Another entry asks whether an issuer qualifying a Regulation A offering statement is required to file a tax opinion as an exhibit to Form 1-A. The SEC answered that filing a tax opinion as an exhibit is not required, although an issuer may choose to do so.

For more information on this topic, or to learn how Baker Tilly accounting and assurance specialists can help, contact our team.

We have partnered with Thomson Reuters to issue our monthly SEC Accounting Update. Please feel free to contact Baker Tilly at accounting@bakertilly.com if you have any questions related to these articles or Baker Tilly's Accounting and Assurance Services. © 2017 Thomson Reuters/Tax & Accounting. All Rights Reserved.