Helping Clients Navigate Through Reg A+ Requirements and Challenges
Reg A+ tokenized issuer must be a U.S. or Canadian company. Securities qualifying for a Reg A+ offering are limited to equity and debt securities, including warrants, convertible equity securities and guarantees of such securities.
Reg A+ provides for two offering tiers:
- Tier 1 – for offerings of up to $20 million in a 12-month period. Tier 1 does not require audited financial statements but is subject to the state requirements (“blue sky laws”) in every state where the securities are offered or sold.
- Tier 2 – for offerings of up to $75 million in a 12-month period. The company must file audited financial statements and ongoing post-offering reports but the state “blue sky laws” are preempted. Tier 2 contains an additional limitation on the amount of securities non-accredited investors can purchase – 10% of the investor’s annual income or net worth.
Reg A+ offering requires filing of an offering statement on the Form 1-A with the SEC and going through the qualification process until the SEC clears the offering by issuing a “notice of qualification.”
The primary disclosure document to be prepared for the Reg A+ offering is called an “offering circular.”
The biggest challenge of a Reg A+ offering of digital or tokenized securities is the significantly heightened SEC scrutiny during the pre-qualification process caused by novel implications of blockchain technology and digital nature of the securities.
Thus, issuers should be prepared to address numerous SEC’s comments and disclose to investors all the peculiarities of tokenized securities and associated risks, including related to the issuance, transferring and secondary trading. Issuers should consider conducting a private placement to accredited investors under Regulation D and/or a crowdfunding offering under Regulation CF while the SEC’s Reg A+ clearance is pending.
Defining the Scope of Reg. A+ STO
The scope of Reg. A+ STO is very broad and may include, for example:
- Tokenized traditional securities, like shares of stock in a corporation;
- Tokenized fund interests, including venture capital and real estate funds;
- Real estate;
- Diamonds or precious metals;
- Works of fine art, luxury cars and boats;
- Interests in a limited partnership or other business entity;
- Profit-sharing right in a business entity, etc.
Guiding Clients Through Reg A+ Offering and SEC Pre-Qualification Process
Our lawyers will guide you through preparation, filing and pre-qualification process of a Reg A+ tokenized offering, including:
- Structuring the offering and the security token terms.
- Incorporating a new issuer.
- Conducting legal due diligence of an existing ownership structure for the issuer to be eligible for Reg A+.
- Drafting offering circular, preparing and filing Form 1-A with the SEC, responding to comments and working closely with the SEC during the pre-qualification process.
- Advising throughout “testing the waters” and in relation to solicitation and marketing materials.
- Advising on operational issues in relation to broker-dealers, crowdfunding platforms and regulated exchanges (alternative trading platforms).
- Providing post-offering legal support of ongoing compliance, secondary trading, capital table management and investor relations.
Tokenized Reg. A+ Offerings for Real Estate
Real-estate tokens will virtually always qualify as securities under state and federal law. As such, they must be registered with the Securities and Exchange Commission (SEC) or satisfy an exemption from registration.
Failure to satisfy this requirement can result in substantial civil penalties and give investors a right to rescind their purchases and receive a full refund.
Of course, most issuers will not seek to register with the SEC, but structure their security token offerings as exempt transactions. In doing so, they will choose from among several available exemptions, including Regulation CF, Regulation D, Regulation S and Regulation A+.
These regulations impose different requirements on the offering, from limitations on who may invest, to limits on the amounts raised, to resale restrictions on investors.
As discussed above, using Regulation A+ exemption, a company can raise up to $75M in a 12-month period and tokens can be immediately traded on regulated ATS platforms on day 1 after the token issuance.
Reg A+ Related Resources:
Regulation A+ Tokenized Offerings
Dilendorf Law Firm,New York,New York-10004,
Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming
Regulation A+ Tokenized Offerings | Offerings of securities, including tokenized securities (STOs), exempted from registration under Regulation A+