How a Mini-IPO under Regulation A Works

Learn about Reg A and how it works for companies and investors.

What is Regulation A?

For the last 80 years, private companies could only raise capital from accredited investors, the wealthiest 2% of Americans. On April 5, 2012, President Obama signed a landmark piece of legislation called The JOBS Act, allowing entrepreneurs to go to the crowd and publicly advertise their capital raises. On June 19, 2015, three years after the JOBS Act was signed, Title IV (Regulation A+) of the JOBS Act went into effect, allowing private early-stage companies to raise money from all Americans. Startups can now use a Mini-IPO under Reg A+ to turn their customers into investors.

Reg A+ is a type of offering which allows private companies to raise up to $50 Million from the public. Companies looking to raise capital via Reg A+ will first need to file with the SEC and get qualification before launching their offering. The costs associated with a Reg A+ offering are much lower than a traditional IPO and the ongoing disclosure requirements are much less burdensome, effectively making a Reg A+ offering a mini-IPO.

Testing The Waters

Before committing to a mini-IPO, companies are permitted to test the waters. This enables companies to easily gauge the likely success of a Reg A offering and make an informed decision on whether or not to proceed with an offering.

Preparing the Reg A Offering

Once a company decides to pursue a Mini-IPO, IPOFLOW will work with them to get regulatory qualification. This process involves drafting offering documents and receiving the go-ahead from the SEC.

How it works for the company

After a company has decided to pursue a mini-IPO, they will need to draft a Form 1-A with the help of IPOFLOW and obtain reviewed or audited financials. After filing the Form 1-A, IPOFLOW will work with the company to respond to any comments from the regulators and then file the final offering circular after receiving the final go-ahead from the SEC.

How it works for investors

The company and IPOFLOW will keep you updated on the progress of the offering. You should use this time to learn more about investing in Reg A+ companies and to familiarize yourself with the IPOFLOW platform. The IPOFLOW blog is a valuable source of articles and information about investing in Reg A+ companies.

What is the SEC form 1-A

The SEC form 1-A in many ways resembles the traditional S-1 registration statement used by companies conducting initial public offerings.

When a company decides to issue securities under Regulation A+ it is a somewhat involved process that requires a good deal of coordination among our professionals. IPOFLOW will manage the activities of all appropriate participants on behalf of the issuer internally in order to create a streamlined compliant process with little to any frustration while completing the form 1-A filing process.

The SEC form 1-A is actually broken up into three parts.

Part I of Form 1-A serves as a notice of certain basic information about the issuer and its proposed offering, which also helps to confirm the availability of the exemption. The notification in Part I of Form 1-A requires disclosure in response to general items such as issuer identity, industry, capital structure, contact information, ect. Part I of form 1-A also goes into ”bad actor” disqualifications and disclosures, along with jurisdictional and previous securities sales information.

Part II of Form 1-A contains the primary disclosure document that an issuer will prepare in connection with a Regulation A offering. This primary disclosure document is called an “offering circular.” This offering circular is the equivalent to a prospectus.  Issuers are required to provide financial disclosure in Part II that follows certain requirements.

Part III of Form 1-A requires issuers to file certain documents as exhibits to the offering statement. Issuers are required to file the following exhibits with the offering statement: underwriting agreement; charter and by-laws; instrument defining the rights of securityholders; subscription agreement; voting trust agreement; material contracts; plan of acquisition, reorganization, arrangement, liquidation, or succession; escrow agreements; consents; opinion regarding legality; “testing the waters” materials; appointment of agent for service of process; materials related to non-public submissions; and any additional relevant exhibits the issuer may wish to file.

It usually takes our staff 3 business days to prepare a time and cost proposal for 1-A Filing and Consulting Services. Clients should allow this time for us to prepare a proposal for services.