Testing the Waters (and staying within the lines) with Reg A+

Testing the Waters refers to the ability of an issuer to solicit the general public through social media, the internet and other outbound advertising channels. A Reg A+ offering does create costs, starting with the Form 1-A registration and continuing to the Tier II requirement of annual and semi-annual reporting and auditing.

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Reg A+’s Testing the Waters provision allows a Tier II issuer to first canvas the capital market to see whether there is satisfactory investor interest prior the deep dive and full commitment of a securities offering.

It can be a very flexible program, however there are strict guidelines in place to protect investors:

  • Issuers can Test the Waters by oral or written communications discussing potential the offering with potential investors, both before and after filing Form 1-A with all supporting materials filed as exhibits to Form 1-A.
  • All solicitation materials must include a legend (see below), and must be preceded or accompanied by the Offering Circular after public filing.
  • Testing the Waters communications are considered offers of securities and are subject to anti-fraud provisions of securities laws.
  • Solicitation materials must be included in the Offering Circular and be publicly available to the entire population of prospective investors: nonaccredited as well as accredited investors (note: Tier II offerings have protective limits on nonaccredited investors).
  • Issuers may solicit interest via social media like Twitter by including an active hyperlink to the Offering Circular to satisfy the requirements of applicable securities laws.
  • Issuers may advertise on their own, without a broker/dealer and may target selective investors: ie sector-based based, etc.

All Testing the Waters communications must include a Legend stating that:

  • No money or other consideration is being solicited or accepted.
  • Offers to buy the securities cannot be accepted, and no part of the purchase price can be received until the Form 1-A is qualified and any offer can be withdrawn or revoked at any time before notice of its acceptance is given after the qualification date.
  • That an indication of interest involves no obligation or commitment of any kind.
  • Contacts of a person from whom the preliminary OC can be obtained, a preliminary URL to access the Offering Circular, or copy of the document (only required in Testing the Waters communications made after a Form 1-A has been filed).

If you are looking for more details on the Reg A+ process, please take the time to watch our video session here. You can also download the slide deck.

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