Reg A+ still requires an S-1 level of “data room diligence”

Reg A+ was adopted to facilitate capital-raising by small, emerging growth companies – many who want to avoid the negative perception associated with becoming a public company via a reverse merger or a shell.

Basically, Reg A+ is a simplification of a traditional IPO process – and the robust process of an S-1 registration filing. The Reg A+ offering statement, Form 1-A, consists of three sections.

  • Part I Notification: requires basic information about the issuer and the offering and is predominantly intended to authorize a company’s Reg A+ eligibility.
  • Part II Offering Circular: similar to the prospectus in an S-1 registration statement offering in-depth disclosures – and is the core material for investors.
  • Part III Exhibits: an index and description of required exhibits.

Part II is the meat of the filing and where the company’s working group execute the due diligence, predominantly in a virtual data room, to assess the feasibility of continuing a Reg A+ action.

Much like a traditional IPO S-1, the “mini-IPO” 1-A diligence list is long:

  • Articles, by-laws and resolutions records
  • Assets, both tangible and intangible
  • Bad actor impact
  • Board of directors
  • Client contracts
  • Agreements: consultant, contractor and supplier
  • Corporate governance
  • Environmental law liabilities
  • Financial information: GAAP
  • Insurance coverage
  • Intellectual property
  • Investor relations plans
  • Litigation, past and pending
  • Management agreements and compensation
  • Management biographies
  • Marketing and PR strategies
  • Previous securities offerings
  • Promoters and stock advisors
  • Sales strategies
  • Shareholder information: current ownership
  • Taxes, expected and owed

A transparent diligence process is essential for all parties in the working group. Although the Form 1-A is a lighter process than the S-1, it is absolutely not exempt from Section 10(b) of the ’34 Act forbidding any manipulative, “fraudulent devices and schemes, material misstatements and omissions of any material facts, and acts and practices that operate as a fraud or deceit on any person in connection with the purchase or sale of a security.” All parties in the working can be liable.

We work with companies for both the implementation and training of their virtual data room and the creation and filing of their Form 1-A. Contact us here.

2 responses to “Reg A+ still requires an S-1 level of “data room diligence”

  1. Andrew C. Spacone

    Thanks again Laura. Any sense of whether Reg A+ offers are being widely pursued? Are issuers viewing it as a better option than an EGC IPO? Or is it still too soon to tell?

    Andrew

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