As the Securities and Exchange Commission (“SEC”) finishes the rulemaking that provides a structure for full implementation of the JOBS Act, much has been written about its impact on smaller U.S. businesses. Less has been said about the benefits it may confer on foreign issuers seeking to enter U.S. markets using going public transactions.
Emerging Growth Companies
Foreign issuers, like their U.S.-based counterparts, may be defined as an “emerging growth companies” if they have less than $1 billion in annual gross revenues, have not raised more than $1 billion in debt, and have not conducted an SEC registered public offering prior to December 8, 2011. If they wish to complete a going public transaction for their SEC registration statements on Form F-1, the securities laws provided them with relaxed disclosure requirements.
The JOBS Act provides foreign issuers with the opportunity to “test the waters” with potential institutional accredited investors prior to filing a registration statement, confidential SEC review of draft registration statements, and reduced auditor and accounting requirements.
Rule 506(c)
Under the JOBS Act Rule 506(c) of Regulation D provides domestic and foreign issuers with the opportunity to engage in general solicitation and advertising of the offering before and after their offerings going public transactions. Until Rule 506(c), general solicitation and advertising was prohibited in all private offerings; they are still not allowed in any offering in which non-accredited investors may participate.
Under Rule 506(c), companies may advertise their securities on television, on the radio, in the social media, at seminars and more. Although these advertisements will necessarily be broadly disseminated, issuers can accept funding from accredited investors only. They must take “reasonable steps” to ensure that those investors meet the definition of an “accredited investor”.
An accredited investor is:
a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; or a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
The SEC suggests methods companies can use to make the correct determination. They may, for example, ask to review investors’ tax returns, or bank or brokerage statements; they could also request written confirmation from a broker-dealer, registered investment adviser or CPA.
While making sure investors are genuinely accredited is an added burden, the advantages of engaging in general solicitation and advertising are considerable, especially for foreign issuers that lack a strong presence in the U.S. and which need a shareholder base.
Crowdfunding
Crowdfunding is another type of exempt offering made available to small companies though another of the JOBS Act’s provisions. Foreign issuers, however, will not be eligible to use crowdfunding, along with SEC reporting companies, blank check companies, delinquent SEC filers, and others.
Foreign issuers wishing to raise capital should give thought to the new options provided by the JOBS Act and Rule 506(c). A qualified securities attorney can help identify the most suitable type of exempt offering for individual companies to assist them in effectively completing their going public transaction.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit www.gopublic101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
Telephone: (561) 416-8956
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