Overview

In the United States under the Securities Act of 1933, any offer to sell securities must either be registered with the United States Securities and Exchange Commission (SEC) or meet certain qualifications to exempt it from such registration. Regulation A (or Reg A) contains rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities to the general public without having to register the securities with the SEC.

Regulation A offerings are intended to make access to capital possible for small and medium-sized companies that could not otherwise bear the costs of a normal SEC registration and to allow nonaccredited investors to participate in the offering. The regulation is found under Title 17 of the Code of Federal Regulations, chapter 2, part 230. The legal citation is 17 C.F.R. §230.251 et seq.

Background

Prior to the enactment of the Jumpstart Our Business Startups Act (JOBS Act) of 2012, Regulation A had existed under the Securities Act of 1933 but was rarely used. The exemption was capped at $5 million per year — an amount widely considered insufficient to cover the costs of preparing and qualifying the required offering documentation — and the requirement to register offerings in each state further reduced its appeal.

Title IV of the JOBS Act, signed by President Obama on April 5, 2012, directed the SEC to expand Regulation A and create a class of securities exempt from registration for public offers of up to $50 million, subject to the SEC's biennial review of the threshold. The resulting rules — commonly referred to as Regulation A+ — were adopted by the SEC on March 25, 2015, and became effective June 19, 2015. In March 2021, the SEC raised the Tier 2 annual cap from $50 million to $75 million.

On March 25, 2015, the SEC issued new final regulations amending Regulation A. Montana and Massachusetts state regulators sued the SEC requesting a stay that would pause the implementation of Reg A. The rules came into force on June 19, 2015.

Regulation A+

On March 25, 2015, the Securities and Exchange Commission adopted final rules to implement Section 401 of the Jumpstart Our Business Startups Act by expanding Regulation A into two tiers. Reg A+ became effective June 19, 2015.

An issuer of $20 million or less of securities can elect to proceed under either Tier 1 or Tier 2. The final rules for offerings under Tier 1 and Tier 2 build on current Regulation A and preserve, with some modifications, existing provisions regarding issuer eligibility, Offering circular contents, testing the waters, and "bad actor" disqualification.

The new rules modernize the Regulation A filing process for all offerings, align practice in certain areas with prevailing practice for registered offerings, create additional flexibility for issuers in the offering process, and establish an ongoing reporting regime for certain Regulation A issuers. Under the final rules, Tier 2 issuers are required to include audited financial statements in their offering documents and to file annual, semiannual, and current reports with the SEC on an ongoing basis.

On March 15, 2021, businesses using Tier 2 were allowed to raise up to $75 million in capital within a 12-month period, as opposed to the previous limit of $50 million (cf. $1 million per state). Lobbyists have proposed raising the limit of Tier 2 to $100 million.

The SEC qualification timeline for a Reg A+ offering varies considerably; while the process from initial preparation through qualification typically spans several months, some platforms report that average qualification time after filing runs approximately 50 days, with certain offerings qualifying in a matter of days depending on the complexity of the filing and the responsiveness of the issuer to SEC comments.

Non-accredited Investors

Regulation A allows the general public to invest in private companies. Purchasers in Tier 2 offerings can either be accredited investors, as that term is defined in Regulation D (SEC), while investors of any wealth level are also allowed to invest, and they are limited to a maximum investment of 10% of their Net Worth or annual income, whichever is greater, per Reg A+ offering. Investors self-state their income and accreditation status without needing to provide proof.

The SEC allows investors from any legitimate country in the world, excluding problem countries like Iran, and North Korea and similar.

Eligibility

There is no minimum operating history required to conduct a Regulation A offering under either tier. Companies seeking to list securities on a national exchange such as Nasdaq or NYSE following a Regulation A offering must separately satisfy those exchanges' listing standards, which include minimum operating history and financial requirements.