What Is Regulation A?
Let me explain Regulation A directly: under U.S. securities laws, any offering or sale of a security must be registered with the Securities and Exchange Commission (SEC) or qualify for an exemption. Regulation A serves as that exemption from registration requirements, as established by the Securities Act of 1933, specifically for public offerings of securities. If you're a company using this exemption, you gain clear advantages compared to those that must fully register, though you still need to file an offering statement with the SEC and provide buyers with documentation similar to a prospectus.
Key Takeaways on Regulation A
Regulation A is straightforward—it's an exemption that lets you offer securities publicly without full registration. It was updated in 2015, allowing companies to raise funds under two distinct tiers, each representing different investment structures. For Tier 1, with a maximum of $20 million, you avoid ongoing reporting but must report the offering's final status. For Tier 2, up to $75 million, you need audited financial statements and continual reports, including the final status.
Understanding Regulation A
You should know that the advantages of Regulation A often outweigh the documentation demands. These include streamlined financial statements without audit requirements in some cases, options for three different formats for your offering circular, and no need for Exchange Act reports until your company exceeds 500 shareholders and $10 million in assets. The 2015 updates introduced two tiers, so if you're an investor, check which tier applies—it's marked on the front of the disclosure document, as the tiers define fundamentally different investments.
Regulation A: Tier 1 vs. Tier 2
Companies using Regulation A can choose between two tiers, each with specific rules, but in both cases, you must file an offering statement with the SEC, including an offering circular as the key disclosure for investors.
Tier 1 Details
Under Tier 1, you can offer up to $20 million over 12 months. Your offering statements must be filed with the SEC and qualified by state regulators in the states where you plan to sell. Importantly, there's no ongoing reporting requirement, but you do need to issue a report on the offering's final status.
Tier 2 Details
For Tier 2, the limit is $75 million in a 12-month period. You must produce audited financial statements and file continual reports, including the final status. Unlike Tier 1, Tier 2 offerings don't require state registration or qualification, though you still file with the SEC. Additional rules apply, such as limits on how much non-accredited investors can put into a Tier 2 security.
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