Our Practice
Regulation A Offerings
Regulation A permits eligible U.S. and Canadian companies to conduct exempt public offerings. It may allow participation by non-accredited investors, subject to applicable conditions.
Regulation A has two tiers: Tier 1, for offerings of up to $20 million in a 12-month period, and Tier 2, for offerings of up to $75 million in a 12-month period. Tier 2 adds audited-financial-statement and ongoing-reporting requirements. For offerings of up to $20 million, a company can elect to proceed under either tier's requirements.
Capital Markets Law Group represents issuers in structuring, preparing, qualifying, and maintaining Regulation A offerings.
What Is the Difference Between Tier 1 and Tier 2?
Tier 1 and Tier 2 differ mainly in size, investor protections, and reporting. Tier 1 offerings can reach $20 million in a 12-month period, and Tier 2 offerings can reach $75 million. In a Tier 2 offering, a non-accredited investor may generally invest no more than 10 percent of the greater of the investor's annual income or net worth, and the offering requires audited financial statements. Tier 2 issuers file ongoing annual, semiannual, and current reports, and Tier 2 offerings are not subject to state securities registration or review, while Tier 1 offerings generally are.
| Feature | Tier 1 | Tier 2 |
|---|---|---|
| Maximum offering in a 12-month period | Up to $20 million | Up to $75 million |
| Investment limit for non-accredited investors | No Regulation A limit | Generally 10 percent of the greater of annual income or net worth |
| Audited financial statements | Generally not required | Required |
| Ongoing reporting | Exit reports when applicable | Annual, semiannual, and current reports |
| State registration or review | Generally required | Preempted for qualified offerings |
The right tier depends on the offering size, the investor base, the company's audit readiness, and the states where the securities will be offered.
What Is Form 1-A?
A Regulation A offering begins with an offering statement on Form 1-A, which generally includes:
- Information about the issuer and offering
- Offering circular
- Business disclosure
- Risk factors
- Use of proceeds
- Management and compensation
- Principal ownership
- Related-party transactions
- Description of securities
- Plan of distribution
- Financial statements
- Material contracts and exhibits
The company may begin sales only after SEC qualification.
Can a Company Advertise Before Qualification?
Regulation A permits testing the waters before or after filing, subject to applicable legends and conditions. Marketing materials remain subject to antifraud requirements and should be consistent with the offering circular.
What Reports Must a Tier 2 Issuer File?
A Tier 2 issuer generally files:
- Form 1-K annual reports
- Form 1-SA semiannual reports
- Form 1-U current reports
- Form 1-Z when applicable
When Should Counsel Become Involved?
Before the offering structure is set. The tier election, the securities design, the audit scope, and the marketing plan all interact, and changes after filing the Form 1-A are expensive. Early counsel review covers:
- Choosing between Tier 1 and Tier 2 before the offering statement is drafted
- Planning the audit scope Tier 2 requires
- Structuring the securities and offering terms
- Reviewing testing-the-waters materials for antifraud consistency
- Planning the transition to ongoing reporting for Tier 2 issuers
What Documents Are Required?
Common documents include:
- Form 1-A offering statement with the offering circular and exhibits
- Audited financial statements for Tier 2 offerings
- Corporate approvals and governance documents
- Subscription and escrow documents
- Testing-the-waters communications and legends
- Ongoing report drafts for Tier 2 issuers
- Transfer-agent and depository arrangements
What Commonly Causes Problems?
Recurring issues in Regulation A offerings include:
- Financial statements that are not ready when the offering statement is filed
- Testing-the-waters materials that overstate or precede the disclosure
- Tier elections made without weighing state review and reporting trade-offs
- Offering circulars that describe the securities or plan of distribution inaccurately
- Escrow and subscription mechanics that fail at closing
- Missed ongoing reports by Tier 2 issuers after the raise
- Companies that treat qualification as a listing or reporting determination
What Alternatives Are Available?
Depending on the raise size and investor base, alternatives include Regulation D private placements, Regulation Crowdfunding, registered offerings on Form S-1, and staying private. Regulation A sits between private placements and full registration in cost and reach, and the comparison pages describe the trade-offs.
Is Regulation A the Same as Going Public?
Not necessarily. Regulation A permits a public offering, but completing the offering does not automatically produce an exchange listing, OTC quotations, or conventional Exchange Act reporting. Separate steps may be required for:
- OTC quotations
- Exchange listing
- Exchange Act registration
- Transfer-agent and depository arrangements
- Market-maker participation
- State-law secondary trading
How Does Capital Markets Law Group Help?
Our services may include:
- Evaluating Tier 1 and Tier 2
- Structuring the offering and securities
- Preparing Form 1-A and the offering circular
- Preparing testing-the-waters materials
- Coordinating with auditors
- Preparing corporate approvals
- Preparing subscription and escrow documents
- Responding to SEC comments
- Coordinating qualification and closings
- Advising on investor communications
- Preparing ongoing reports
- Coordinating market-access objectives
Keep Reading: SEC Securities Offerings, Going Public and Form S-1 Registration Statements, Nasdaq and NYSE American Uplistings, Nasdaq Listing Applications and Uplisting Counsel.
Frequently Asked Questions
Can Non-Accredited Investors Participate?
Yes, subject to applicable Tier 2 investment limitations and other requirements.
Does the SEC Approve a Regulation A Offering?
The SEC qualifies the offering statement. Qualification is not a recommendation or guarantee.
How Long Does Qualification Take?
There is no fixed timetable. Timing depends on audit readiness, records, offering complexity, and SEC comments.
Can Selling Shareholders Include Their Shares?
Potentially, subject to applicable secondary-sale limitations.
Can a Shell Company Use Regulation A?
Regulation A is unavailable to certain blank-check or ineligible companies, including companies without a specific business plan that intend to merge with an unidentified company.
Are Regulation A Shares Freely Tradable?
They generally are not restricted merely because they were sold under Regulation A, although other legal, contractual, affiliate, or market restrictions may apply.
How Much Can a Non-Accredited Investor Invest in a Tier 2 Offering?
In a Tier 2 offering, a non-accredited investor may generally invest no more than 10 percent of the greater of the investor's annual income or net worth. Companies should document how they apply the limit.
Get Started
Talk to Capital Markets Law Group About Regulation A
Capital Markets Law Group assists issuers with Tier 1 and Tier 2 offerings, Form 1-A, SEC qualification, ongoing reporting, and related market-access matters. Contact the firm before filing the offering statement or beginning testing-the-waters communications.