House Drafts Increase in Reg A Limit to $50M

The US House of Representatives Financial Services Committee has released a draft bill called the Small Company Capital Formation Act of 2011. The first salvo in what we hope will be more Congressional efforts to help small companies with capital formation.

The bill, just four pages long (!), basically increases the amount you can raise in a Regulation A offering (see prior posts for explanation of Regulation A) to $50 million, but in an interesting way. It pretty much leaves Reg A the way it is now if you are raising up to $5 million, you can offer publicly, "test the waters" before, shares are tradable thereafter once the SEC approves an offering circular, but no further reporting requirements after that.

The bill says that if you are raising between $5 million and $50 million, the SEC would be given the authority to require filing of audited financial statements, disqualify companies with bad actors and require the company to make periodic disclosures. It also proposes requiring that the upper limit be re-examined every two years and gives the SEC the power to increase it.

What are the political prospects of this passing? Is this good? Is this everything we'd want to see in such reform? Does the SEC like this idea of organizing "disclosure lite"? I will report to you as this develops, but take a look back at my prior posts on how this reform could go to see other possible changes we hope they will consider.

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.

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