[co-author: Carlos Juarez]*
The Securities and Exchange Commission’s (SEC) Small Business Capital Formation Advisory Committee (the “Committee”) will meet on May 6, 2025 to consider the market impact and challenges associated with Regulation A.
Staff from the SEC’s Division of Corporation Finance, Office of Small Business Policy, and the Office of the Advocate for Small Business Capital Formation will provide an overview of Regulation A, including how companies have used the exemption to raise capital. The Committee will discuss the advantages and drawbacks of Regulation A and consider any possible changes that would facilitate capital formation. Finally, the Committee will discuss exit and other liquidity opportunities for Regulation A investors and associated secondary market liquidity challenges.
In 2015, the SEC adopted final rules to implement Section 401 of the Jumpstart Our Business Startups (JOBS) Act by expanding the exemption provided by Regulation A into Tier 1 and Tier 2 offerings: Tier 1, for offerings of up to $20 million in a 12-month period; Tier 2, for offerings of up to $75 million (originally $50 million) in a 12-month period. For offerings of up to $20 million, companies can elect to proceed under the requirements for either Tier 1 or Tier 2. See our chart comparing exempt offerings. The volume of Regulation A offerings has not increased significantly in recent years, as reported by the SEC. For example, in the December 2024 report published by the SEC”s Office of the Advocate for Small Business Capital Formation, companies initiated 77 Regulation A offerings in 1H 2024. This is down 56% compared to H1 2023, which saw 174 Regulation A offerings.
These discussions are coming at a time when Congress is considering legislation that would amend Regulation A as we have previously written about. In addition, in a recent speech given at a NASAA conference, Acting Chair Uyeda spoke on various matters related to the interplay between state securities laws and Federal securities laws. The Acting Chair noted that the SEC should consider the effect of state securities laws on capital formation. In particular, Acting Chair Uyeda commented on Regulation A:
“For another example, consider a small business that raised capital pursuant to Regulation A – Tier 2 and sold its securities to retail investors. Even though the company’s sale to the investors were exempt from state registration requirements and the securities are not restricted securities, the investors cannot resell such securities without consideration of state securities laws. The marginal cost and added complexity of complying with state laws in this situation may adversely impact secondary liquidity, which in turn could make offerings pursuant to Regulation A – Tier 2 less attractive to investors and limit the ability of small businesses to raise capital. As these scenarios highlight, the interplay between federal and state securities laws with respect to the registration or qualification of securities transactions should be reconsidered.”
Hopefully, the SEC will consider more broadly all resale exemption The meeting will be streamed live on the SEC’s website.
*Practice Administrator
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