The Jumpstart Our Business Startups Act (JOBS Act), enacted in 2012, introduced significant reforms to U.S. securities laws to facilitate capital raising for emerging companies. Among its key provisions are Regulation D, Regulation Crowdfunding (Reg CF), and Regulation A+, each offering distinct avenues for businesses to attract investment.
Regulation D
Regulation D provides exemptions that enable companies to raise capital without the need for full SEC registration. Notably, Rule 506(b) under this regulation allows businesses to secure unlimited funds from accredited investors and up to 35 non-accredited investors, provided they possess sufficient financial knowledge and experience. However, general solicitation or advertising of the offering is prohibited under this rule. This pathway is advantageous for companies seeking to raise substantial capital while maintaining confidentiality, as it permits a combination of accredited and select non-accredited investors. In order to generally solicit investors publically a fund would use Rule 506(c) as long as they only accept accredit investors into the fund.
Regulation Crowdfunding (Reg CF)
Reg CF democratizes investment by permitting companies to raise up to $5 million USD annually from both accredited and non-accredited investors. This regulation under the Jumpstart Our Business Startups Act mandates that offerings be conducted through SEC-registered crowdfunding platforms, which provide transparency and facilitate investor access. For businesses, Reg CF offers a streamlined process to engage a broad investor base, fostering community involvement and brand loyalty. Investors benefit from the opportunity to support early-stage ventures with relatively modest contributions, diversifying their investment portfolios.
Regulation A+
Regulation A+ expands upon the traditional Regulation A exemption, allowing companies to raise up to $75 million USD annually through a public offering without full SEC registration. Divided into two tiers – Tier 1 for offerings up to $20 million USD and Tier 2 for offerings up to $75 million USD – this regulation provides flexibility in raising capital. While Tier 1 requires state securities registration, Tier 2 preempts state laws but imposes additional reporting obligations. Reg A+ enables companies to access public capital markets with reduced regulatory burdens, making it an attractive option for scaling businesses.
The regulations of the Jumpstart Our Business Startup Act – Regulation D, Regulation Crowdfunding, and Regulation A+ – offer diverse mechanisms for businesses to raise capital, each geared to different funding needs and investor bases. These provisions have collectively enhanced the ability of companies to access necessary funds while providing investors with varied opportunities to participate in the growth of emerging enterprises.
