Rule 155: A Safe Harbor for Abandoned Offerings

The U.S. Securities and Exchange Commission (SEC) provides a safe harbor known as Rule 155 for companies that change their capital-raising plans. The rule addresses situations where a company abandons a securities offering to pursue a different type. Its function is to prevent the two offerings—the abandoned one and the new one—from being legally “integrated” by regulators, which could cause a violation of securities laws.

Rule 155 creates a path for two scenarios. The first involves a company that abandons a private offering of securities to pursue a registered public offering. The second is the reverse, where a company abandons a registered public offering to raise capital through a private offering. The rule establishes specific conditions for each path to ensure the separation between the offerings.

Transitioning from a Private to a Public Offering

When a company pivots from an abandoned private offering to a registered public offering, it must adhere to conditions under Rule 155(b) for the safe harbor. The primary requirement is that no securities were sold during the private offering. Placing investor funds into an escrow account is considered a sale for these purposes and would make the safe harbor unavailable, as the private offering must be abandoned before any binding commitments are made.

Another condition is that the company and anyone acting on its behalf must stop all activities related to the private offering before filing the registration statement. All solicitation efforts and negotiations with potential private investors must end. This creates a clean break between the two fundraising efforts and prevents overlap that could violate securities regulations.

The prospectus for the new public offering must include specific disclosures about the abandoned private offering. This disclosure informs potential public investors about the previous effort, including its size, the date it was abandoned, and a statement that the offers in the private placement were terminated. This transparency ensures investors are aware of the prior capital-raising attempt.

The registration statement for the public offering can only be filed after the company has met all other conditions. In most cases, the company must wait 30 days after terminating all private offering activities before filing. An exception exists if the private offering was limited only to accredited or sophisticated investors, in which case the 30-day waiting period may not be required. This waiting period serves as a cooling-off period, further reinforcing the separation between the two offerings.

Transitioning from a Public to a Private Offering

For a company that abandons a registered public offering for a private one, Rule 155(c) provides a safe harbor with its own conditions. As with the other transition, a requirement is that no securities were sold during the public offering. The SEC views a registration statement filing as a general solicitation, which is prohibited in most private offerings, so this safe harbor allows a company to proceed without the public filing tainting the private effort.

A procedural step is that the company must formally withdraw its registration statement with the SEC by submitting an application for withdrawal. This ensures a clear and official termination of the public offering before any private offering activities begin. This formal withdrawal is a public record, providing a definitive end date to the registered offering.

The rule imposes a mandatory 30-day waiting period. The company cannot start the private offering until at least 30 calendar days have passed after the withdrawal of the registration statement becomes effective. This cooling-off period separates the general solicitation of the public offering from the targeted nature of the private offering. Commencing the private offering early would disqualify the company from the safe harbor.

The issuer must provide specific notifications to each potential investor in the new private offering. This disclosure must state that the offering is not registered with the SEC and that the securities will be “restricted,” meaning they cannot be freely resold for a certain period. The notice must also inform investors that the issuer abandoned a public offering and that the registration statement was withdrawn. This ensures private investors are fully aware of the regulatory status of their investment and its limitations.

Withdrawal and Filing Procedures

A central piece of documentation in the public-to-private transition is the formal withdrawal of the registration statement, accomplished by filing SEC Form RW. This form is the official request to the SEC to terminate the public offering process. Completing Form RW involves providing identifying information, such as the Central Index Key (CIK) code and the registration statement’s file number. The filer must affirm that no securities were sold in connection with the offering, a condition for using the Rule 155 safe harbor.

The completed Form RW must be submitted electronically via the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. This is the standard portal for nearly all filings made with the commission and requires the filer to have the appropriate EDGAR access codes.

Once Form RW is filed, the withdrawal process is swift. Under amended Rule 477, an application to withdraw an entire registration statement before it becomes effective is deemed granted automatically upon filing. The SEC retains the right to object within 15 days of the filing, but this is uncommon if the conditions are met. The SEC will issue an order declaring the withdrawal effective, which provides the start date for any subsequent waiting periods.

For a company moving from a private to a public offering, the procedural step after abandoning the private effort is filing the new registration statement. After all private offering activities have ceased and any required 30-day waiting period has been observed, the company can submit its registration statement, such as on Form S-1, through the EDGAR system.