Key Takeaways
- Regulation A enables mini-IPOs with reduced compliance.
- Two tiers: Tier 1 ($20M), Tier 2 ($75M) limits.
- Tier 2 requires audited financials and ongoing reports.
- Allows public offerings including non-accredited investors.
What is Regulation A? Definition, Update, Documentation, and Tiers
Regulation A is an exemption from full securities registration under the Securities Act of 1933 that allows small- and medium-sized companies to raise capital publicly with streamlined disclosure requirements. Updated by the JOBS Act and SEC amendments, it offers two tiers with different offering limits and reporting obligations to facilitate easier access to public funding while protecting investors.
This mini-IPO framework permits companies to publicly advertise and sell securities, including to non-accredited investors, using Form 1-A and accompanying offering circular documentation. Understanding Regulation A is essential if you're considering raising capital without undergoing the full regulatory burden typical of traditional IPOs or want to explore investment opportunities in emerging companies.
Key Characteristics
Regulation A provides a flexible capital-raising option with distinct features tailored to issuer size and investor protection.
- Two Tiers: Tier 1 allows offerings up to $20 million over 12 months; Tier 2 raises up to $75 million, including sales by affiliates.
- Investor Access: Both tiers permit sales to the public, including non-accredited investors; Tier 2 limits non-accredited investments to 10% of annual income or net worth.
- Disclosure Requirements: Issuers file Form 1-A with the SEC, including an offering circular detailing financials, risks, and business overview.
- State Regulation: Tier 1 offerings require state-by-state qualification; Tier 2 preempts state registration except for notice filings.
- Reporting Obligations: Tier 2 issuers submit ongoing reports (annual, semiannual, current event), while Tier 1 has minimal post-offering requirements.
- Eligibility: Certain bad actors and investment companies are excluded from using Regulation A.
How It Works
To initiate a Regulation A offering, you file Form 1-A with the SEC, which includes a detailed offering circular similar to a prospectus. The SEC reviews and qualifies the offering, enabling you to publicly solicit investors and advertise your securities, a key advantage over private placements.
After qualification, securities can be sold up to the tier limits. Tier 2 issuers must comply with more rigorous ongoing reporting, including audited financial statements, making them "reporting companies." Tier 1 offers greater simplicity but requires navigating state securities laws, which may complicate or delay fundraising efforts.
Examples and Use Cases
Regulation A is popular among startups, real estate firms, and other growing companies seeking public capital without the costs of a full IPO.
- Regional Projects: Smaller firms and community initiatives often use Tier 1 to raise funds locally due to state qualification requirements.
- National Crowdfunding: Platforms enabling broad investor participation use Tier 2 offerings to raise up to $75 million, attracting investors nationwide.
- Corporate Examples: Airlines like Delta have leveraged public capital markets, illustrating the potential scale and reach of well-structured offerings.
- Growth Investments: Regulation A offerings align with strategies for growth stocks, allowing investors to access emerging companies early.
Important Considerations
While Regulation A reduces some regulatory burdens, you must carefully assess the tier that fits your capital needs and compliance capacity. Tier 2’s ongoing reporting and audit requirements can increase costs but offer broader market access and state preemption.
Additionally, understanding your company's structure, such as whether it is a C corporation, and your obligations under securities laws is critical. Consulting professionals familiar with Regulation A documentation and disclosure will help ensure a compliant and successful offering.
Final Words
Regulation A offers a streamlined path for smaller companies to raise capital with fewer regulatory hurdles, especially under the updated Tier 2 limits of $75 million. To move forward, review your company’s eligibility and prepare Form 1-A to initiate the SEC qualification process.
Frequently Asked Questions
Regulation A is a securities exemption that allows small- and medium-sized companies to offer and sell securities to the public with fewer compliance requirements than a traditional IPO. It enables equity crowdfunding and public advertising, making it easier and more affordable for companies to raise funds from both accredited and non-accredited investors.
Tier 1 offerings allow up to $20 million in securities sales over 12 months and require SEC qualification plus state-level review, with no ongoing SEC reporting. Tier 2 allows up to $75 million, preempts state registration, requires audited financials, and mandates ongoing SEC reports, making it more suitable for companies seeking larger capital with streamlined state oversight.
In 2020, the SEC increased the offering limit for Tier 2 from $50 million to $75 million over 12 months, while Tier 1 remains at $20 million. These updated thresholds have been effective since November 6, 2024, with no further changes noted in recent SEC guidance.
Companies must file Form 1-A with the SEC, which includes an offering circular that provides detailed disclosures about the offering, risks, financials, and business plans. Sales cannot begin until the SEC qualifies the offering.
Tier 2 issuers must file annual reports (Form 1-K) with audited financials, semiannual reports (Form 1-SA), and current event reports (Form 1-U). Tier 1 issuers have no ongoing SEC reporting requirements but must file an exit report when the offering ends.
Yes, Regulation A allows non-accredited investors to participate in both Tier 1 and Tier 2 offerings, making it a versatile option for companies seeking broader public investment.
Regulation A is often called a 'mini-IPO' because it offers a more streamlined and cost-effective way for smaller companies to raise capital publicly. Unlike traditional IPOs, it has reduced disclosure and compliance burdens and permits general solicitation.
Tier 1 offerings require state-by-state registration or qualification, which can be time-consuming and costly. Tier 2 offerings preempt state registration requirements except for a notice filing, simplifying the process for companies.
