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Reg A+ liquidity explained for insiders and investors

How does Regulation A+ provide liquidity to investors and founders and long term investors?


For the investor, the degree of actual liquidity depends on the Issuer company's Reg A+ offering. If they list on the NASDAQ or NYSE then liquidity can be excellent. If they list on the OTCQB or the OTCQX, then the liquidity can be good to very good.

When an Issuer company does not list on the above exchanges, then liquidity is limited to the specialized Reg A+ aftermarket exchanges, and broker-dealers that support Reg A+ share trading in the aftermarket. These exchanges are small and offer limited liquidity at present; they are growing to fill the need.

The Issuer company may choose to offer direct liquidity to their investors by defining what valuation method they will use and what other restrictions will apply in their Offering Circular. This type of liquidity is regulated.

The company's Affiliates will need to resell their Reg A+ shares in reliance on Rule 144 if they want to sell publicly. There's no holding period imposed, but there are limitations on the number of shares they can sell at any one time, they'll need to sell through a broker or market maker, they'll have to file a Form 144 with the SEC and "adequate current public information" must be available about the company, which means it must be compliant with Regulation A's ongoing reporting requirements.

The pleasant surprise for many company founders and long-term investors is that when a Tier 2 type Reg A+ completes its six-monthly reports of profits and losses and after reporting the annual US-GAAP audit, then for two weeks after the results are announced, insiders can sell their securities if they have passed their Rule 144 holding period (usually 12 months). Insiders (management and founders) and investors that own more than 10% of the stock in the company are restricted to selling less than 1% of the "Float" (the daily trading volume) per day.

Non-Insiders - ie passive investors with less than 10% ownership that have passed their Rule 144 holding period (usually 12 months)- can sell their non-Reg A+ securities. Their securities are made public by the Reg A+ unless the company locks them.

Issuers that want their Reg A+ shares to be tradable all year round can make quarterly management financial filings with the SEC; this then opens up liquidity for insiders four times per year.

Manhattan Street Capital is not a law firm, and this is not legal advice. Please contact your lawyer with respect to any of the matters discussed here.


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