What is Regulation A?
Regulation A, also known as Reg A, allows companies to offer and sell securities to the public without having to register the securities with the Securities and Exchange Commission (SEC). The regulation exempts small- to medium-sized companies from registration requirements in order to make it easier to raise capital under two different tiers. These two tiers went into effect when the SEC adopted final rules in March 2015 to implement Section 401 of the Jumpstart Our Business Startups (JOBS) Act. Reg A also allows companies to publicly promote themselves as a means of attracting investors.
Under Tier 1 of Regulation A, a company can offer up to $20 million in any 12-month period. Requirements include filing Form 1-A—similar to a prospectus—that’s subject to review and qualification by the SEC along with the securities regulator in the states where the offering is taking place. The offering circular is the narrative portion of SEC Form 1-A and is shared with potential investors.
Under Tier 2 of Regulation A, a company can raise up to $50 million in any 12-month period. Issuers in this case must provide an offering statement to qualify their offerings with the SEC but do not have to register or qualify their offerings with state securities regulators. With both Tier 1 and Tier 2, the offering circular must contain critical information such as details about the offering and the securities offered; investment risks; any selling shareholders; specifics on the company’s business, management, performance and plans; and financial statements—with Tier 2 companies, financial statements must be audited.
Companies issuing under Tier 2 must also file regular reports with the SEC, though they are exempt from having to file quarterly reports. Semiannual (Form 1-SA) and annual reports (Form 1-K) along with interim current reports (Form 1-U) are required of these Tier 2 companies under Regulation A.
In some cases, a Tier 2 company may apply to be listed on a national exchange. If it meets the requirements for that exchange, the company will then need to file more extensively, including submitting quarterly reports on a regular basis.