About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 1 (October 5, 2017)

handle is hein.crs/govcgvy0001 and id is 1 raw text is: 01;0i E.$~ & October 5, 2017 Private Securities Offerings: Background and Legislation Companies turn to a variety of sources to access the funding they need to grow and make new investments. Among them are capital markets, segments of the financial system in which capital is raised through equity securities (assets that represent ownership stakes in a firm) and debt securities (assets that represent creditor relationships with a firm). The Securities and Exchange Commission (SEC) is the principal regulator of the nation's securities markets. In general, the agency requires that offers and sales of securities either be registered with the SEC or be undertaken with an exemption from registration. A fundamental goal of registration is ensuring that investors receive financial and other significant information on the securities being offered for public sale. Figure I. Aggregate Capital Raised in Securities Markets in 2009-2014 by Offering Method ($Billions) Private Offerings Public Offerings 7 Source: Scott Bauguess et al., Capital Raising in the US: An Analysis of the Market for Unregistered Securities Offerings, 2009-201I4, October 201 5, https:Ilwww sec gov/deralstaff-papers/white-papers! u nregistered-offeringl 102015.pdf. Registered offerings, often called public offerings, are available to all types of investors. By contrast, securities offerings that are exempt from SEC registration are referred to as private offerings, private placements, or unregistered offerings. They are mainly available to financial institutions or individual investors with certain financial or income wherewithal known as accredited investors. As such, the SEC registration process, which enables investors to access key financial information, can be viewed as a dividing point between public and private securities offerings. Private offerings, which can range from $100,000 to tens of millions of dollars, have outpaced public offerings in recent years to become the preferred option for raising capital (see Figure 1). According to a SEC staff whitepaper, the private debt and equity offerings for 2012 through 2016 combined exceeded the public offerings by about 26%. As stated earlier, companies may be able to access a variety of funding sources. Some private companies do conduct private placements; some eventually go public via an initial public offering (IPO, the initial offering of the stock of a private company to the public). Public companies may also issue private offerings. As both public and private companies issue private offerings, public and private offerings differ by SEC registration status, instead of issuer type. Below are descriptions of key registration exemptions under federal securities laws that enable the issuance of private offerings. Regulation D (17 CFR §230.501 et seq.), Rule 144A (17 CFR §230.144A), and Regulation A (17 CFR §230.251 through §230.263) are examples of exemptions that establish private offerings. Regulation D is the most frequently used exemption to sell securities in unregistered offerings. Companies relying on a Regulation D exemption do not need to register their offerings with the SEC, but they face limitations regarding size and investor type of their offerings. Rule 144A is for resale transactions only. Issuers generally use it in a two-step process to first facilitate a primary offering on an exempt basis to financial intermediaries, and then resell to qualified institutional buyers (QIBs, a corporation that is deemed to be an accredited investor). Regulation A is an exemption to facilitate capital access for small to medium-sized companies. It has fewer disclosure requirements than the registration process. Regulation A was updated in 2015 with a two-tiered structure (Regulation A+) to exempt from registration the offerings of up to $50 million annually, if specified requirements are met. Companies choose to go public to access capital that would allow founders to cash out their investments, to provide substantial stock and stock options to employees and management incentive plans, and to fuel the company's future growth. Public companies also benefit from liquidity premium, which translates into better share pricing compared with stock from comparable private offerings, among other things. There are also advantages, however, for firms to remain private. Compliance costs. Proponents of the proposals believe the costs of registration are large in magnitude and disproportionately burdensome for small and medium-sized businesses, including startup firms. The direct costs include underwriting, external auditing, legal and financial reporting fees. Business operations. Public companies are often perceived to face incremental market pressure for short-term performance, reduction in insider control and decision- making flexibility, and contention with increased shareholder activism (which sometimes could be to a firm's financial benefit). Some research has indicated that going K~:> p\w -- , gn'a', goo mppm qq\ a , q 'S I 11LIANJILiN,

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Already a HeinOnline Subscriber?

Log In

profiles profiles most