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REGULATION A Federal Regulation A allows issuers to sell up to $5 million of securities in a manner similar to that of a registered offering. Securities sold pursuant to Regulation A are issued at the federal level pursuant to section 3(b) of the 1933 Act, which gives the SEC authority to exempt up to $5 million of an offering of securities from the registration requirements of the 1933 Act. In practicality, the process at the federal level is virtually identical to a "registered" offering under the 1933 Act. Moreover, securities issued pursuant to Regulation A are freely transferable. An important advantage of Regulation A over SEC registration utilizing SB Forms is that by using Regulation A (or a ULOR offering pursuant to Rule 504), the issuer is not compelled to become a reporting company under the 1934 Act unless and until it has outstanding a class of equity securities with 500 or more shareholders and more than $10 million in total assets. The issuer in a Regulation A offering cannot be a reporting company under the 1934 Act, a development stage company, an investment company registered under the Investment Company Act of 1940, or an issuer of fractional undivided interests in oil or gas rights or other mineral rights. In addition, "bad boys" cannot rely on Regulation A. An issuer may utilize as the basis of the offering document either Form 1-A, Form SB-2, or Form U-7. Regulation A generally does not require audited financial statements, although audited financial statements will be required in Arizona as discussed below. Regulation A allows for so-called "test-the-waters" pre-offering solicitations of indications of interest subject to SEC oversight. This is accomplished pursuant to a written document or scripted television or radio broadcast that provides only limited information about the potential offering. No sales or commitments to purchase will be accepted until an offering circular with full disclosure is provided to investors. In Arizona, a Regulation A offering is made under the statute providing for registration by qualification. Thus, the offering is subject to full Arizona merit review and audited financial statements are required. Arizona does provide for "testing the waters" for certain types of offerings pursuant to the provision of A.A.C. R14-4-141. Links: Qualification, Western Regional Review
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