Regulation A+ Improvement Act Of 2017 May Change Capital Raising Cap In A Big Way

The Regulation A+ Improvement Act of 2017 (the Act) was introduced on November 7, 2017 by Republican Thomas MacArthur and recently passed 246-170 votes with the overwhelming support of Republicans.

Ready For Some Background?

In mid-2015, the U.S. Securities and Exchange Commission (Commission) amended Regulation A (this is not a typo – Regulation A+ is not the real name of the regulation, but just a colloquial way to refer to it) in order to expand the exemption from registration under the Securities Act, as mandated by the Jumpstart Our Business Startups (JOBS) Act, to enhance the ability of smaller companies to raise money.  Regulation A allows companies to offer and sell securities to the public, but with more limited disclosure requirements than those that apply to full reporting companies under the Securities Exchange Act of 1934.  In comparison to registered offerings, smaller companies in earlier stages of development are able to use this rule to more cost-effectively raise money.

Why Is The Act Such A Big Deal?

The Act amends Section 3(b) of the Securities Act of 1933 in a BIG way.  First, the Act raises the aggregate offering amount of all securities offered and sold within the prior twelve (12) month period in reliance on the Exemption from $50,000,000 to $75,000,000.  Hold on.  That is an increase of 50% = BIG.  Second, it changes paragraph 5 of 15 U.S.C. 77c(b) to provide for further inflation-adjusted increases in the aggregate offering amount.

How Likely Is It That The Act Will Become Law?

The Act must be approved by the Senate and President before it becomes law. Given that Republicans have a majority in the Senate and the cap increase will stimulate capital formation, my guess is that the Act will become law.