OTC, Smaller Reporting Companies Welcome Regulation A Changes

July 10, 2018

By John Pennett

President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) in May 2018. One of the main facets of the Act is a provision that now allows SEC reporting companies to use Regulation A prior to an IPO—exempting them from SEC registration requirements. The goal here is to increase the access to capital, particularly for smaller companies, many of which are in the technology and life sciences space. 

Regulation A is available for companies offering up to $20 million (Tier 1) and offerings up to $50 million (Tier 2). Companies can include those listed on stock exchanges as well as sold over-the-counter.

This particularly benefits smaller companies by offering them (1) the chance to streamline the process by avoiding state securities laws through OTC trading, as many of them do not trade on the NYSE or NASDAQ; (2) greater investor outreach prior to an IPO; (3) less burdensome solicitations to retail investors; and (4) an expedited and more affordable IPO process, such as by the ability to file a Form S-3.

Smaller companies would be wise to consider leveraging the newly revised Regulation A as a quicker, cheaper alternative to raise capital. There are still certain groups of issuers that are not eligible to use Regulation A for various reasons. As such, a business advisory firm with expertise in this particular area could add tremendous value to a firm’s efforts.

About John Pennett

John Pennett is the Partner-in-Charge of the National Technology and Life Sciences Group and works closely with our IPO clients and their circle of legal and underwriting advisors to take an IPO from concept to close.

About Neal Godt

Neal Godt CPA is an Audit Partner, National Commercial Services Leader, Partner-in-Charge of the SEC and New Jersey Audit practice, serving the technology, manufacturing and distribution, and software sectors, and service related companies.

About Marc Fogarty

Marc Fogarty, Audit Partner and National Biotech Sector Leader, within Technology and Life Sciences Group, and member of the firm's Public Companies, Cleantech and International Services Groups. Marc is experienced in public accounting, serving public and private organizations and has presented on IFRS to professional groups.

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