What is Regulation A and EDGAR (simply explained by a Financial Data Scientist)?!
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Registration A
A type of exemption offered by the SEC that allows smaller companies to raise money much easier than a Traditional IPO or other more arduous ways of getting listed on the Stock Exchange and/or OTC Market.
The OTC Market is what many consider to be the penny stock market (it is not necessarily true).
Companies of all sizes trade on the OTC Markets. The main difference between the Exchange and OTC Markets is how it is regulated.
Registration A Exemption has become very popular for companies to raise money especially through Crowdfunding sites like:
History of Regulation A
“In April of 2012, President Obama signed legislation creating the “Jumpstart Our Business Start-Ups Act”, otherwise known as the “JOBS Act”. The Jobs Act sought to alleviate regulatory burdens and facilitate investment in several significant ways, including requiring the SEC to expand the permitted aggregate sale, in any 12-month period under Regulation A, from $5 million to $50 million, with certain additional reporting requirements.
On March 25, 2015, the SEC adopted final rules related to the changes to Regulation A required by the Jobs Act.
The final rules, often referred to as Regulation A+, provide for two tiers of offerings:
- Tier 1, for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer; and
- Tier 2, for offerings of securities of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer. Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.” ~Source
Tier 1 vs. Tier 2
There are some specific differences on how these two Regulation Filings are handled and because we are not into typing 20 minute articles we have added some very helpful links below:
Link 1
Link 2
“Since November 2015, any company that completes a Tier 2 (but not a Tier 1) Regulation A+ offering will be qualified for a public listing on the OTC Markets QB and can easily qualify for the QX marketplace.…The Broker-Dealer must sponsor your company by filing a Form 211 with FINRA, a step that takes 4 to 8 weeks, which will normally be a simple request that will likely be accepted.” ~Source
What this basically means is buy filing a Registration A it gives company raising money two choices (Tier 1 vs. Tier 2).
In a nutshell, Tier 2 is easier to get done because it doesn’t require State Review Agencies to approve (which can be a long process).
On the other hand it has more strict reporting regulations after approval (compared to Tier 1).
Tier 1 is harder on Frontend but easier on Backend.
Tier 2 is easier on Frontend but harder on Backend.
Over 80% of present day Companies and Startups use Tier 2.
The Regulation A Process
When a company begins the process of raising money publicly through Registration A, the first part of the process involves registering with Edgar (this in itself is a chore but should not take longer than a few hours).
Link to Register with Edgar:
https://www.filermanagement.edgarfiling.sec.gov/filermgmt/Welcome/EDGARFilerMgmtMain.htm
Link to Troubleshoot with Edgar (trust you will need it):
What is EDGAR?
“EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, is the primary system for companies and others submitting documents under the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, and the Investment Company Act of 1940.
Containing millions of company and individual filings, EDGAR benefits investors, corporations, and the U.S. economy overall by increasing the efficiency, transparency, and fairness of the securities markets. The system processes about 3,000 filings per day, serves up 3,000 terabytes of data to the public annually, and accommodates 40,000 new filers per year on average.
EDGAR® and EDGARLink® are registered trademarks of the SEC.” ~SEC
PAPERWORK FILINGS INVOLVED:
Form 1-A https://www.sec.gov/about/forms/form1-a.pdf
Form 1-Z https://www.sec.gov/files/form1-z.pdf
Form 1-K https://www.sec.gov/files/form1-k.pdf
Form 1-SA https://www.sec.gov/files/form1-sa.pdf
Form 1-U https://www.sec.gov/files/form1-u.pdf
Well that mostly sums it up. Of course you should consult an Attorney and seek Advisement. The process is too complex to figure out on your own if you are in a hurry to take investors.
The laws can be tricky but until next time! Clap and Follow us!
