Sunday, November 12, 2017

What is Regulation A?

Regulation A allows companies to offer and sell securities to the public, but with more limited disclosure requirements than what you would currently expect from publicly reporting companies.  In comparison to registered offerings, smaller companies in earlier stages of development may be able to use this rule to more cost-effectively raise money. 
How does Regulation A affect me?
With recent changes, Regulation A may present new opportunities for you to invest in early stage and smaller companies and businesses.  If you take advantage of these opportunities, however, you should also be fully aware that your investment will involve risk.  Following are some general risks to keep in mind:
  • Speculative.  Investments in startups and early-stage ventures are speculative and the businesses may fail.  Unlike an investment in a mature business where there is a track record of revenue and income, a startup often relies on the development of a new business, product or service that may or may not find a market.  The SEC does not pass upon the merits or give its approval to any securities offered. 
  • Illiquidity.  Even though there is no resale restriction, you may need to hold your investment for an indefinite period of time.  If the securities are not to be listed on an exchange where you can quickly and easily trade the securities, you will have to locate an interested buyer when you do seek to resell your investment.  
If I want to invest, what do I need to know?
Regulation A allows companies to raise money under two different tiers.  If you are interested in investing in a company relying on Regulation A to sell its securities, then it is very important for you to know which tier the offering is being conducted under.  Companies are required to indicate the tier their offerings are being conducted under on the cover of their primary disclosure document—the offering circular.  The two different tiers mean two different types of investments for you.  Regardless of the tier, however, any offering under Regulation A is subject to both federal and relevant state jurisdiction for any fraudulent and other unlawful conduct.  Read more about Regulation A from the S.E.C. website. 

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