Tip of the Week: Don't Forget Self-Filings, Regulation A and Other IPO Alternatives

With all the hullabaloo about the Rule 144 changes last year which made shell mergers a little less attractive, one should not lose sight of the fact that a reverse merger is not the only alternative to traditional IPOs. More and more companies, as we have written here, are turning to self-filings, voluntarily becoming an SEC reporting company to allow stock to trade, all without a shell. The process takes longer than a reverse merger and is therefore only for companies who can wait that time for financing or have a way to finance themselves while going through the process. They also need enough of a shareholder base and a strong Wall Street hand assisting them. But under these conditions, a self-filing can be attractive indeed.

An often underutilized tool is Regulation A. As I outlined in my book, “Reg A” was passed to help small companies raise money. In general, it permits an offering of up to $5 million in any twelve-month period to an unlimited number of investors, whether or not accredited. An offering circular is prepared and approved by the SEC, but the form is a bit more streamlined than a full registration statement and does not require audited financial statements. It includes a method to test the waters with potential investors, even using general solicitation, before going through a filing with the SEC. It seems that most lawyers do not see Reg A as a useful tool, but I think it is underappreciated and deserves another look.

In the book we outline other alternatives such as using the “intrastate exemption” to complete an offering wholly within one state. So even if a shell merger is not for you, there are other legitimate options out there.

Leave a comment