And by that I mean the geographic location of your place of business, if you have one. The pandemic has accelerated the existing trend of people working remotely and running their businesses from pretty much anywhere.
Crash any Zoom call these days. Josh appears to be calling in from a desert island but it’s a greenscreen behind him hiding the litterbox in his basement. Shireen is sitting on the deck of a house in what appears to be the Mountain West, although we thought she lived in SoHo. Emily is desperately trying to hide the fact that she is yawning because it’s late in Italy and she hasn’t told anyone that she moved there in March. And Amit . . . get that swimming pool . . . are we paying him too much?
No-one knows where anyone is anymore (on so many levels). And that’s an issue with Regulation A offerings.
Issuers under Reg A must be organized under the laws of the United States or Canada and have their “principal place of business” in those jurisdictions. Rule 251(b)(1). But we are having problems determining where a “principal place of business” actually is.
When you have a muffin shop, you know where your principal place of business is. Not the case for software developers, ecommerce companies, fintech companies and so many more of our clients. Used to be that even companies with dispersed workforces had some sort of “office” somewhere, and most of them lived in the US. Now, so many of us just use the office as place for snailmail to accumulate among the yellowing plants, or have dumped the WeWork contract altogether in favor of a PO box.
Before the pandemic, one of the few bits of guidance we used to determine “principal place of business” was Exchange Act Rule 3b-4, which defines “foreign private issuer.” Using that rule in reverse, if the majority of the executive officers and directors are US citizens and residents, more than 50% of the company’s assets are in the US and the business is “administered principally” in the US, the company is probably Reg A eligible. But if the CEO of an ecommerce company has grabbed her laptop and her kiteboard and decided to spend the plague years in Aruba, does the fact that the only real “administration” going on in the US is her warehouse manager watching the inventory, is that enough?
I’m not sure we have any answers here, but even post-pandemic the issue is going to get more urgent. Now that we know we really can work from anywhere, where is our principal place of business?