Introduction to SEC Exemption Rule under Regulation A+ ICO/IPO Offering

Intro to Securities Laws

Four score and 5 years ago, the United States government passed into law the Securities Act of 1933, followed by the establishment of the U.S. Securities and Exchange Commission. These acts of Congress still echo the political outburst that officially ended the industrial revolution of the early 1930's. President Roosevelt explained that the statute was intended to restore confidence in the public markets by ensuring that companies with new problems could not “concealed from the buying public.” In 2012, the Jumpstart Our Business Startups (JOBS) Act created a new type of offering that largely bypassed these investor protections.

Advantages of Regulation A+

Commonly known as a mini- IPO, Regulation A+ provides compelling advantages for companies with a strong user base and clear value proposition that are seeking to raise capital. For instance, companies can engage in public advertising campaigns, including =

• accredited
• non-accredited investors
• its own customers,

= To market and promote the offering to a broader class of investor - but there are still limitations to selling securities until an offering is fully qualified.

Introduced in 2012 as a way to go public, Regulation A+ is fast becoming a valuable capital raising tool for emerging companies. Furthermore,

• Legal, accounting, and other professional service costs are lower
• offering. companies are not bound by the “quiet period” rules that restrict advertising
• filing under Reg A allows a company to "test the waters"

Still, a limited to what types of advertising to weigh out the viability of the startup platform.

Companies go through only a minimal “qualification” process, which offers a shorter filing time and lower fees. than a traditional methods.

The JOBS act created new options for fundraising, thus allows more companies to "streamline" the filing process so it's easier and faster than ever to legally raise money for a small business or startup project in the United States.

Moreover, Reg A+ has two tiers options for sponsoring an offering (Tier 1 and Tier 2) both will allow a smaller companies to go public on a national securities exchange, such as NYSE or NASDAQ, without having to follow the more rigorous IPO process, but those platforms also have added requirements.

A+ offering, the provision allowed small companies to raise up to:

• TIER 1 - $20 mil
• TIER 2 - $50 mil

Exemption Comparison Analysis

In particular, startups planning to sponsor an ICO will find Reg A+ as the most beneficial option. Equity offerings accounted for the majority of Regulation A+(87% of all offerings and 90% of qualified offerings)

Important to note, companies can offer shares to a broad range of purchasers, including both accredited and non-accredited investors. This enables a company to involve its own customers and use its own ecosystem for the offering

Reg A+ can be filed under either Tier 1 or Tier 2, It's important to be thorough when comparing the differences when deciding the best.

Also, it’s possible to form a strategic plan for filing under more than one exemption, though you should get help from a lawyer experienced in securities law before you take any action on any of the options presented here.

Aside from going through a long, cretinous, and expensive registration process, the other option is to fall under an exemption. There are three exemptions a startup can claim Regulation D, Regulation A+, and Crowdfunding.

Regulation A vs Crowdfunding (Regulation CF)

It is a common misconception that because Reg A is marketable to any and all investors, it is crowdfunding. However, there are some significant differences between Reg A and true crowdfunding under Regulation CF. Because of the lower capital raise limit, companies utilizing Reg CF tend to have lower valuations and be in earlier developmental phases. Reg A is for more established companies looking to use the capital for growth.

Regulation CF also requires that the offering is listed on a registered funding portal. Acceptance into these portals can be highly competitive, with some accepting as few as 1% of applicants. No such requirements exist for Reg A offering, though some portals do exist to help with listing and subscription, as does the option to list on national stock exchanges such as OTC, NASDAQ, and NYSE.

Regulation A vs IPO

Though Reg A is an exemption from federal registration requirements like private capital raise exemptions Regulation D and CF, Reg A actually has more in common with a traditional IPO. Because it is open to all investors and because in some cases securities can even be resold or traded, Reg A offering are considered public offerings.

A traditional IPO is designed for large companies with the capital needed to cover the legal and accounting costs associated with going public. Reg A opens up the door for smaller companies to do the same, including the ability to list Tier 2 offerings on securities exchanges like NASDAQ or NYSE or even OTC. For this reason, a Tier 2 offering is sometimes called a “Mini-IPO.”

ICO Token Sales and Regulation A+

Regulation A+ offering is an SEC-approved mechanism for raising equity capital and is best used by companies with a strong user base, it provides a viable mechanism by which companies can do a token sale.

If a company sold security tokens, the company could execute a Regulation A+ offering of securities, and each security would be issued in the form of a token. This would enable a company to sell tokens and investors to receive tokens while the company remains safely within the bounds of the U.S. securities laws.

In addition, the tokens issued in a Regulation A+ security token offering may be able to be freely traded on an alternative trading system (ATS). ATS platforms that can trade security tokens are currently under development and it is expected that such platforms will become available later this year.

Tier 1 Requirements:

• The company must be organized under the laws of the U.S. or Canada
• The company can raise up to $20 million in any 12-month period
• Companies that want to raise up to $20 million can elect either Tier 1
• Not more than $6 million can consist of sales by affiliates of the issuer (such as insiders)
• Anyone is permitted to participate and invest
• Public advertising (oral, written or solicitations of interest) is permitted
• The company’s financial statements do not have to be audited
• The company must register or qualify the offering under the applicable “blue sky law” in any state in which the company seeks to offer or sell securities. Blue sky law by state

Reporting Obligations

Companies that would like to file under Regulation A+ must submit a Form 1-A to the SEC, receive SEC qualification and satisfy the requirements of their selected tier. Companies whose securities have not previously been sold under Regulation A+ or an effective registration statement may submit a Form 1-A confidentially, but the document must be publicly filed no less than 21 days before SEC qualification.

Similar to an IPO, a Reg A offering can act as a liquidity event for earlier stage investors. This “secondary sales” process allows for up to 30 percent of the securities sold during a raise to come from current security holders.

Thank you for Reading! I hope this information helped. Feel free to ping me with questions regarding Reg A+. ESPECIALLY if you are an Angel Interested in Blockchain, Real Estate Equity, and REIT Dividends, let's Collaborate!