Regulation D or A+: Which is Preferable for Raising Capital

by | Jul 4, 2016 | Money And Finance

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The JOBS Act is responsible for game-changing rules that, at the time of this writing, seem to be opening the doors to a much-expanded world of possibilities for small businesses to access new capital. Two of the new Regulations available – Regulation D Rule 506(c) and Regulation A+ – offer different advantages that may be well-suited for raising capital.

Regulation D
Regulation D contains Rules 504, 505 and 506, each providing differing exemptions from registration under the Securities Act. Rule 504 provides an exemption for capital raises up to $1 million in a 12-month period, Rule 505 permits the sale of securities of not more than $5 million in a 12-month period, and Rule 506 actually contains two ways to offer securities for sale without having to register with the SEC. 506(b) is a “safe harbor” exemption and is a long-standing rule that allows a capital raise with no maximum dollar limit from friends, families, and private networks. 506(c) is the newcomer, added in 2013 thanks to the JOBS Act, and allows general solicitation of the capital raise so that investment is not only limited to friends, families, and private networks. Of the three rules, Rule 506 is most often used, and Rule 506(c) is what garners the most post-JOBS Act attention. Rule 506(c) allows companies to generally solicit and advertise for investors.

Regulation A+
It’s been called ‘Regulation A+’ because of the perceived improvements over the old, pre-JOBS Act Regulation A. Reg. A+ contains two tiers of offerings.

Tier I: companies can raise up to $20 million, must obtain both state-level and SEC review, and there are no ongoing reporting requirements.

Tier II: companies can raise up to $50 million, must obtain SEC review (but does not require state-level review), and comply with bi-annual reporting requirements.

This is the reason that Rule 506(c) of Regulation D is so popular. No limits on the amount of money that can be raised, and no restrictions on the type of company (public or private) or registration jurisdiction (U.S. or foreign) that can participate. A Rule 506(c) capital raise is relatively simple and economical to pursue, but only accredited investors may make purchases.

Reg A+ also offers some flexibility in the sense that non-accredited investors can invest as well, and interests are freely tradable. However, a Reg A+ offering will cost a little bit more to pursue and take a little bit longer to get off the ground.

Rule 506(c) capital raises will dominate the marketplace, but they require verification of accredited investor status. For legally compliant accredited investor verification, turn to, which is recognized as the safe, secure, and confidential choice.

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