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Is Regulation A+ an Initial Public Offering - IPO?

Is Regulation A+ an Initial Public Offering  - IPO?

Reg A+ can be used for an IPO to the NYSE or NASDAQ and, starting in June of 2017 a significant number of companies (see the list here) have made their IPOs via Reg A+. While you are allowed to use a Reg A+ offering to take your company public and list it on the NASDAQ or the NYSE, that is not a requirement.  One significant advantage of Reg A+ is that the SEC rules provide for the investors in the Reg A+ to be liquid immediately, with no lockup requirement. Another advantage of using Regulation A+ to take your company public to the NASDAQ or NYSE is that you can set a zero minimum for the Reg A+ itself and then if you do not meet the minimum listing capital raise or investor count for the NASDAQ or NYSE you can still complete the raise and bring in the capital. Then the option to up-list exists for a later date.

This flexibility also allows the company to save money because the legal and audit costs of a conventional S-1 IPO are considerably higher than for  Reg A+, and the SEC filing process takes much less time for a Reg A+ - 90 days is a reasonable expectation for SEC Qualification in Reg A+.

Another cost-effective route is to list your company on the OTCQB, or the OTCQX; see below for more on this. Some companies are taking this route with a plan to up-list when they are more established. An advantage of this approach is that when you list on an OTC from a Reg A+ your company is not required to make ongoing reports at the S-1 (expensive) level - an annual US GAAP level audit is the biggest expense. And a company that listed on the OTCQB or OTCQX can make a Feg A+ offering each year via Reg A+ and stay with the lower cost reporting obligation.

Securities and Exchange Commission (SEC) rules allow for the sale and purchase of your company’s shares after the Regulation A+ offering has completed in any case; see below. As the offering company, you do not have to list your stock on any market. And you are allowed to restrict liquidity on the Reg A+ shares post offering. Doing this will usually reduce the appeal of your offering to investors.

Reg A+ shares are stock (or other security) that can be bought and sold in the after-market by the general public through stock brokers. 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 listing fee is currently $2,500 for OTCQB, with a $12,000 annual renewal fee payable to OTC Markets. The OTCQB and OTCQX markets are operated by OTC Markets Group, not by NASDAQ. 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.
Listing on the more prestigious OTCQX market is also available, although there are more reporting requirements (to satisfy OTC Markets) - quarterly financials and an initial background check on the executives of the management team. The fees are higher for an OTCQX listing - $5,000 listing fee plus $20,000 per year. For OTCQX, the accounting firm used must be PCAOB registered. Audits are required once per year. These liquidity options make a Reg A+ offering a very attractive alternative to a Reverse Merger - buying a public shell on the OTC Pink Sheet market, and an IPO. A company that has completed a Tier 2 Regulation A+ offering has the option to take itself public by taking the listing steps outlined above. It is not a requirement. Clearly, investors will prefer the improved liquidity when you put your company on the OTCQB or OTCQX and still more on the NASDAQ and the NYSE.

We sometimes call Reg A+ offerings Simple Public Offerings(TM) and SPO(TM) for short. Because Reg A+ offerings are for less than $75 million of capital - simple offerings to the public. And they are far more cost-effective than an IPO, or a reverse merger. The rules are simpler than for an S-1 IPO. The process of getting qualified with the SEC is far simpler than for an S-1 IPO.

After a company has completed a Regulation A+ offering, the reporting requirements are far simpler than after an S-1. And Reg A+ offerings (up to $75 Million per company per year) are much smaller than conventional IPOs tend to be. The average conventional S-1 IPO raises approx $300 million.

Related Content: 

Reg A+ IPO with Manhattan Street Capital

Cost of taking your company public using Regulation A+

Timeline schedule for  Reg A+ IPO to the NASDAQ or NYSE