Regulation A, commonly called "Reg A" or "Reg A+," provides a streamlined path for companies to raise capital from both accredited and non-accredited investors without the full burden of a traditional IPO. Often referred to as a "mini-IPO," Regulation A allows companies to raise up to $75 million in any 12-month period while maintaining more flexibility and lower costs than conventional public offerings.
What Is Regulation A?
Regulation A is an exemption under the Securities Act of 1933 that allows companies to offer securities to the general public without going through the full SEC registration process required for traditional IPOs. Originally created in 1936, it was overhauled in 2015 under rules mandated by the 2012 JOBS Act, earning the nickname "Reg A+." Every offering starts with a Form 1-A filed on EDGAR, so each one leaves a public record; embarc collects them into a list of Reg A issuers.
The Evolution to Reg A+
The 2015 updates, and the 2020 amendments that followed, transformed Regulation A from a rarely used exemption into a viable capital-raising tool:
- Increased Limits: Raised the offering limit from $5 million to $50 million in 2015, and to $75 million in the 2020 amendments (effective 2021)
- Two-Tier Structure: Created Tier 1 and Tier 2 with different requirements
- General Solicitation: Allowed advertising and marketing to general public
- Testing the Waters: Permitted gauging investor interest before filing
- Continuous Offerings: Enabled ongoing sales rather than one-time events
Key Characteristics
- Public Offering: Can market to anyone, not just accredited investors
- SEC Qualified: Must be qualified by SEC before selling securities
- Ongoing Reporting: Some ongoing disclosure requirements
- Not Restricted Securities: Purchasers can resell without a holding period, though a trading market exists only if the securities are quoted or listed
- No Investor Limits: Unlimited number of investors allowed
Tier 1 vs. Tier 2: Understanding the Structure
Tier 1 Offerings
Tier 1 allows companies to raise up to $20 million in a 12-month period:
Tier 1 Key Features:
- Offering Limit: Up to $20 million in 12 months
- Secondary Sales: Up to $6 million by selling shareholders
- State Registration: Must also register in each state where sold (see blue sky laws)
- Financial Statements: Unaudited financials acceptable unless audited ones already exist
- Ongoing Reporting: No periodic reports; only a Form 1-Z exit report after the offering ends
- Bad Actor Rules: Standard disqualification provisions apply
Tier 2 Offerings
Tier 2 allows companies to raise up to $75 million in a 12-month period:
Tier 2 Key Features:
- Offering Limit: Up to $75 million in 12 months
- Secondary Sales: Up to $22.5 million by selling shareholders
- State Preemption: Exempt from state registration (federal preemption)
- Financial Statements: Audited financials required
- Ongoing Reporting: Annual (1-K), semiannual (1-SA) and current (1-U) reports required
- Investment Limits: Caps on non-accredited investor purchases
Choosing Between Tier 1 and Tier 2
The choice between tiers depends on several factors:
- Funding Needs: Tier 2 for larger raises ($20M+)
- State Complexity: Tier 2 avoids state registration
- Financial Statements: Tier 1 if audited financials unavailable
- Ongoing Costs: Tier 1 has lower ongoing compliance costs
- Investor Base: Tier 2 better for institutional investors
The Regulation A Process
Step 1: Testing the Waters (Optional)
Companies can gauge investor interest before or after filing with the SEC:
- Market Research: Assess demand without formal offering
- Investor Meetings: Present concept to potential investors
- Public Solicitation: Advertise the potential offering
- No Securities Sales: Cannot actually sell securities yet
- Safe Harbor: Protected activity under securities laws
Step 2: Form 1-A Filing
The offering statement filed with the SEC includes:
- Part I - Notification: Structured data on the issuer, tier, amount and price offered, states of sale, intermediaries, fees paid to underwriters, auditors and lawyers, and summary financials (cash, total assets, revenue, net income)
- Part II - Offering Circular: Detailed disclosure document
- Part III - Undertakings: Ongoing compliance commitments
- Financial Statements: Reviewed (Tier 1) or audited (Tier 2)
- Exhibits: Material contracts and other documents
Step 3: SEC Review and Qualification
The SEC reviews the filing for compliance:
- Initial Review: SEC staff examines filing for completeness
- Comment Letters: SEC requests clarifications or additional information
- Response Process: Company addresses SEC comments
- Qualification: SEC declares offering statement "qualified"
- Timeline: Commonly several months; the SEC has no fixed review deadline
Step 4: Marketing and Sales
Once qualified, companies can market and sell securities:
- General Advertising: Can advertise to general public
- Offering Circular: Must provide disclosure document to investors
- Sales Process: Can use various distribution methods
- Ongoing Sales: Continuous offerings can run up to three years from qualification before a new offering statement is needed
Investment Limits and Investor Protections
Tier 2 Investment Limits
Tier 2 offerings include investment limits for non-accredited investors:
- Per-Offering Limit: No more than 10% of the greater of annual income or net worth in any one Tier 2 offering
- Self-Certification: Investors may rely on their own representation of income and net worth
- Listed Securities: The limit does not apply when the securities will be listed on a national securities exchange
- Accredited Investors: No investment limits
Disclosure Requirements
Companies must provide comprehensive information to investors:
- Business Description: Operations, strategy, and markets
- Risk Factors: Material risks facing the business
- Financial Information: Historical and pro forma financials
- Use of Proceeds: How raised funds will be used
- Management: Background and compensation details
- Securities Terms: Rights and features of offered securities
Ongoing Compliance Requirements
Tier 1 Ongoing Requirements
- No Ongoing Reporting: No regular SEC filings required
- State Law Compliance: Must comply with applicable state laws
- Antifraud Provisions: Subject to securities law antifraud rules
- Updates: May need to file amendments for material changes
Tier 2 Ongoing Requirements
- Annual Reports: Form 1-K within 120 days of fiscal year end
- Semi-Annual Reports: Form 1-SA within 90 days of mid-year
- Current Reports: Form 1-U within four business days of certain triggering events
- Exit Reports: Form 1-Z to suspend reporting obligations
- EDGAR Filing: All reports filed electronically with SEC
Suspension of Reporting
Tier 2 companies can suspend reporting if they meet certain criteria:
- Shareholder Test: The class is held of record by fewer than 300 persons
- Track Record: At least one Form 1-K filed, reports current, and no Reg A offering under way
- Section 12(g) Relief: Tier 2 issuers that use a registered transfer agent and have a public float under $75 million (or revenue under $50 million) are conditionally exempt from Exchange Act registration
- Filing Requirement: Must file Form 1-Z to suspend
Advantages of Regulation A
For Companies
- Broader Investor Base: Can market to both accredited and non-accredited investors
- Cost Effective: Lower costs than traditional IPO
- Marketing Freedom: Can advertise and promote publicly
- Freely Resalable: Securities are not restricted, so a secondary market is possible
- Flexible Structure: Various security types permitted
- Brand Building: Public offering creates visibility
- Growth Capital: Access to significant funding
For Investors
- Early Access: Invest in growing companies before traditional IPO
- Liquidity: No holding period, if a trading venue exists
- Transparency: Regular disclosure and reporting (Tier 2)
- Protection: Investment limits protect smaller investors
- Opportunity: Access to deals previously limited to institutions
Challenges and Considerations
For Companies
- Complexity: Regulatory requirements and ongoing compliance
- Cost: Legal, accounting, and filing fees
- Time: SEC review process can take months
- Public Scrutiny: Increased visibility and transparency requirements
- Market Risk: Success depends on market conditions
- Dilution: New shares reduce existing shareholder ownership
For Investors
- Risk: Investments in growing companies are inherently risky
- Liquidity: Even tradeable securities may have limited liquidity
- Information: Less information than for traditional public companies
- Volatility: Smaller companies may experience price volatility
- Due Diligence: Need to carefully evaluate opportunities
Regulation A vs. Other Exemptions
For a side-by-side guide to all three, see the differences between Reg A, Reg D and Reg CF.
| Feature | Reg A (Tier 2) | Reg D 506(c) | Reg CF |
|---|
| Offering Limit | $75 million | Unlimited | $5 million |
| Investor Base | General public | Accredited only | General public |
| Advertising | Yes | Yes | Limited off the portal |
| SEC Review | Yes (qualification) | No | No (portal diligence) |
| Ongoing Reporting | Yes | No | Yes |
| Immediate Trading | Not restricted (if a market exists) | No (restricted) | No (1-year transfer limit) |
Market Trends and Examples
Growing Adoption
Regulation A has seen increasing use since the 2015 updates:
- Rising Volume: Billions raised annually through Reg A offerings
- Diverse Industries: Real estate, technology, consumer products, biotech
- Size Range: From $2 million to $75 million offerings
- Repeat Issuers: Platforms that run continuous Tier 2 offerings, refiling as each one reaches its limit
Notable Regulation A Offerings
- Real Estate: Non-traded REITs and loan programs such as the Fundrise eREIT and Groundfloor
- Consumer Brands: Food and beverage companies
- Technology: Software and hardware companies
- Cannabis: Several cannabis companies (where legal)
- Fractional Assets: Series offerings in single artworks or collectibles, such as Masterworks
Platform Development
Supporting infrastructure has evolved to facilitate Reg A offerings:
- Online Platforms: Dedicated Reg A investment platforms
- Transfer Agents: Specialized services for Reg A securities
- Legal Services: Law firms with Reg A expertise
- Technology Solutions: Software for compliance and reporting
Best Practices for Success
For Companies Considering Reg A
- Early Planning: Start preparing 6-12 months before intended launch
- Professional Advisors: Engage experienced legal and accounting counsel
- Market Testing: Use "testing the waters" to gauge interest
- Quality Disclosure: Provide clear, comprehensive information
- Marketing Strategy: Develop comprehensive investor outreach plan
- Compliance Systems: Establish ongoing reporting capabilities
- Realistic Expectations: Understand time and cost requirements
For Investors
- Due Diligence: Thoroughly research companies and offerings
- Risk Assessment: Understand investment risks and limitations
- Portfolio Diversification: Don't overconcentrate in Reg A investments
- Professional Advice: Consult financial and legal advisors
- Long-term Perspective: Consider investments as long-term holdings
Conclusion
Regulation A represents a valuable middle ground between private placements and traditional IPOs, offering companies access to public capital markets with reduced regulatory burden. The 2015 updates have made Reg A a viable option for many growing companies seeking growth capital while providing retail investors access to investment opportunities previously available only to institutions.
Success with Regulation A requires careful planning, professional guidance, and realistic expectations about the time, cost, and complexity involved. For the right companies with appropriate business models and growth prospects, Reg A can provide an effective path to accessing public capital markets.
As the market continues to mature and supporting infrastructure develops, Regulation A is likely to become an increasingly important tool in the capital formation landscape, bridging the gap between traditional private and public financing methods.