If you own a private business outside the US and are interested in pursuing capital raise opportunities through Reg A+, you may have a shot at becoming an issuer as long as you meet certain regulatory requirements.
What’s tricky about becoming a Reg A+ issuer, especially if your business originates from outside the US (or Canada), is that there’s no simple checklist of requirements to follow. It’s an onerous process. And if you choose to pursue Reg A+ issuance without the assistance of a registered broker-dealer (BD), you may find yourself struggling through around 600 pages of regulations before you can even consider filing.
While working with a BD is something we highly recommend, we can provide a few tips to help you get through the first steps—namely, deciding whether Reg A+ issuance is right for you and laying the groundwork for a possible filing, should you decide to move forward with it.
Three things you’ll need to potentially qualify as an issuer
First, let’s think about the purpose of Reg A+. It’s an exemption to the original Regulation A rules established in 1938 (under the US Securities Act) and adopted in 2015 as part of the Jumpstart Our Business Startups (JOBS) Act.
The purpose of Reg A+ is to help American small businesses by easing various securities regulations. It goes without saying that most small businesses in the US largely benefit American workers and consumers.
Now let’s think about the US Securities Exchange Commission (aka, SEC). The agency’s primary goal is to protect the interests of American investors.
So, before you even think about pursuing an opportunity in which your company can benefit from American investment, think about these two things mentioned above.
In terms of having the right perspective and taking the right actions, you will need the capacity to do the following:
- You need to establish a US company (e.g. corporation, LLC, etc.) that will serve as a US headquarters related to your foreign business.
- The company’s officers, partners or managers must primarily direct, control and coordinate the issuer’s activities from the United States.
- Although it may not necessarily be a requirement, indicating plans to engage the US market might support your case. Expert opinion may vary on this matter. Ultimately, it’s up to you to decide whether engaging the US market may or may not support your case for becoming a Reg A+ issuer.
Establishing a US-based headquarters
Establishing a “shell company” may not work out well for any foreign issuer. Avoid doing anything that may indicate you’re somehow “gaming the system” for the sole purpose of garnering capital from US investors.
The SEC, as well as any BD who agrees to work with you, will want to make sure that you have a principal place of business in the US (or Canada) from which the company directs, controls and coordinates its activities. They may want to see if you have an actual office with directors and employees and a means for inbound and outbound communications. In short, a legitimate US headquarters. As Sara Hanks of CrowdCheck Law says, “The SEC Staff really do focus on having people directing, controlling and coordinating from the US.”
While these things matter, we also admit that the working environment in the post-COVID world has complicated things a bit. Namely, a large chunk of the American workforce has gone remote.
Remote work in a post-COVID remote work environment
The COVID pandemic has prompted many workers to rethink their work/life balance. Following the 2020 pandemic lockdown, many workers have opted to continue working from home. As for small businesses that can get by without having a physical office, allowing employees to work from home may be a cost-effective way to keep the overhead low while providing the workforce with a more favorable work/life balance.
The work-from-home economy certainly puts a new spin on things, particularly for foreign companies interested in becoming Reg A+ issuers.
So, if you plan on hiring remotely, it helps to hire workers in the US. It helps to have a business plan, something that describes how your company will conduct its business, what it plans to do with its proceeds, how it will benefit American investors and workers, and how you plan on competing for a share of the US market.
A few basic requirements to anticipate
Expect to meet the following requirements when applying to become a Reg A+ issuer:
1 – You must file a Form 1-A with the US Securities and Exchange Commission
2 – Be prepared to undergo an SEC review process
3 – Work with a US broker-dealer to help you throughout the entire process
4 – Be prepared to disclose all documents regarding your company and your proposed offering
We can’t overemphasize the importance of working with an experienced BD when filing a Reg A+ offering. The process in itself can be onerous and the financial, commercial, and regulatory environment may seem like unfamiliar territory for most businesses let alone those entering the US market for the first time.
Contact us if you have any questions
If you have any questions or can use some help toward making your Reg A+ filing and offering a success, feel free to pick give us a call.
As the go-to Broker-Dealer for Reg A+ financing, we at the Dalmore Group have onboarded more than 210 Regulation A+ clients and hold an excess of $3.6B in current, live offerings plus a pipeline of offerings totaling more than $4.3B. More importantly, we are a people-driven and results-driven firm. We pride ourselves in hiring and teaming with professionals who bring integrity, quality, and professionalism to our organization so that through teamwork and a common vision, we can best serve our clients.