Let’s talk issuer eligibility

I’m going to talk about the basics, but you need to understand that figuring out whether your company is eligible to use Reg A can be complex. Very complex. Hire a securities lawyer to help you; reading this blog isn’t enough.

1. Your company has to be “organized” and have a “principal place of business” in America or Canada. The “organized” part is probably easy to figure out: where did you file your corporate paperwork when you formed your company? Delaware, Nevada, Wyoming, etc.

Where your “principal place of business” is located can be difficult to discern, especially if you have an international footprint. If that’s you, talk to securities counsel.

2. Your company cannot be a blank check; it has to have a real business plan and some operations. And if your plan is to go buy another company, you must identify your actual, bona fide targets. Said differently, SPACs cannot use Reg A because actual targets, not just industries, must be identified.

The takeaway is that, if you don’t have operations yet, or if you want to buy another company, then talk to your securities counsel (“talk to your lawyer” is a recurring theme).

3. Investment companies, private funds, and BDCs. This one is interesting, maybe my favorite, and it can come up in surprising places.

Business development companies and registered investment companies cannot use Reg A. Neither can investment companies that are “required to be registered.” Here, “required to be registered” is lawyer-speak for investment companies that are not registered under the Investment Company Act and are not exempt from registration.

What about private funds, can they use Reg A? After all, they are exempt from registration under the Investment Company Act. Well, this one is tricky. Even though 3(c)(1) and 3(c)(7) funds (i.e., private funds) are exempt from registration, and thus, under Reg A’s rules, could be eligible to use Reg A, the Investment Company Act prohibits private funds from doing public offerings. Because Reg A is a public offering, private funds cannot use Reg A. (Again, note that this analysis is tricky: you have to look (and, just as important, know to look) at both Reg A and the Investment Company Act. This is why you need a securities lawyer.)

Fun(d) Fact: did you know that your company can be an investment company if you merely propose to “engage primarily, in the business of investing, reinvesting, or trading in securities”? Check out the definition of “investment company” in the Investment Company Act. You don’t need to have purchased a single security to be captured by the Investment Company Act.

4. Reg A disqualification. Your company cannot be disqualified under Rule 262 of Reg A (Rule 262 is another biggie, and I will blog about it separately).

5. Current in reporting. If your company is already a Reg A-reporting or 34-Act-reporting company, it must be current for all reports “required to be filed” by Reg A or the 34 Act. (“Filed” vs. “furnished” is another fun one to talk to your securities lawyer about.)

6. These last two are kinda niche:

Oil and Gas – your company cannot use Reg A to issue “fractional undivided interests in oil or gas rights, or a similar interest in other mineral rights.”

12(j) – no Section 12(j) orders against your company’s securities within the past five years (getting a 12(j)’d is a big deal; avoid at all costs).

Those are the basics. None of this is legal advice for your situation. Indeed, if, after reading this, you feel like you need to hire securities counsel, your instincts are good.