Regulation A

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.^[1] 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.

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.^[2]

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.^[3] The resulting rules — commonly referred to as Regulation A+ — were adopted by the SEC on March 25, 2015, and became effective June 19, 2015.^[4] In March 2021, the SEC raised the Tier 2 annual cap from $50 million to $75 million.^[5]

On March 25, 2015, the SEC issued new final regulations amending Regulation A.^[6] Montana and Massachusetts state regulators sued the SEC requesting a stay that would pause the implementation of Reg A.^[7] The rules came into force on June 19, 2015.^[8]

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.^[9] Reg A+ became effective June 19, 2015.

• Tier 1, for securities offerings of up to $20 million in a 12-month period
• Tier 2, for securities offerings of up to $75 million in a 12-month period

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).^[10] Lobbyists have proposed raising the limit of Tier 2 to $100 million.

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.

Regulation A is available to companies incorporated or organized in the United States or Canada. The following issuers are not eligible:

• Companies already required to file reports under the Securities Exchange Act of 1934
• Investment companies registered under the Investment Company Act of 1940
• Blank check companies and shell companies
• Issuers subject to SEC bad actor disqualification provisions
• Issuers who have failed to file required ongoing reports for a prior Tier 2 offering within the two years preceding a new filing
• Issuers of fractional undivided interests in oil or gas rights^[11]

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.^[4]

Unlike a traditional initial public offering, in which a company's securities are registered with the SEC, a Regulation A offering is qualified by the SEC. This distinction is substantive: qualification does not constitute SEC approval of the offering or an assessment of the issuer's merits; it indicates that the issuer has met the SEC's filing requirements.^[12]

To initiate an offering, an issuer must file an offering statement on Form 1-A with the SEC. SEC staff review the filing and may issue comment letters requesting additional disclosure or clarification. Once the staff is satisfied, the offering is declared qualified and the issuer may begin selling securities. According to a 2016 SEC staff research report, the median time from initial public filing to qualification was 78 days, with Tier 2 offerings taking longer than Tier 1 owing to their additional disclosure requirements.^[13]

Regulation A offerings occupy a middle ground between the private placement exemptions of Regulation D and the full registration requirements of a traditional initial public offering. The table below summarises key differences between the principal exemptions and registration pathways available to U.S. companies.

Regulation A permits issuers to solicit non-binding indications of interest from potential investors before or after filing the Form 1-A, a practice known as "testing the waters." Such communications are not offers to sell securities and do not create binding commitments. Testing the waters allows issuers to gauge investor demand before committing to the full costs of preparing an offering statement.^[4]

In addition to qualifying a Regulation A offering with the SEC, companies using a Tier 1 offering must register or qualify their offering in any state in which they seek to offer or sell securities pursuant to Regulation A. Some states provide the option to have Tier 1 offerings that will be conducted in multiple states reviewed through a coordinated state review program by the North American Securities Administrators Association. Achieving state-by-state acceptance is a slow and expensive process, so Tier 1 offerings are rare.

Issuers in Tier 2 offerings are required to qualify offerings with the commission before sales can be made pursuant to Regulation A, but they are not required to register or qualify their offerings with state securities regulators. This partially exempts Tier 2 companies from Blue Sky Law securities rules in each state.

Tier 2 offerings do not have a minimum size requirement, although they are generally regarded as cost-effective only for raises above approximately $4 million. Tier 2 offerings impose additional obligations on issuers, including a two-year US GAAP audit (or since inception for startups) and ongoing semiannual and annual reporting.^[14][15]

Tier 2 offerings by such issuers do remain subject to some state law enforcement and antifraud rules. Issuers in Tier 2 offerings may still be subject to filing fees in the states in which they intend to offer securities.

Several limitations have been identified by legal practitioners and commentators since Regulation A+ came into effect.

The cost and complexity of preparing a Form 1-A offering statement — including audited financial statements for Tier 2 and a median SEC qualification period of approximately 78 days — has led some commentators to conclude that Regulation A+ does not compete effectively with Regulation D for early and mid-stage companies, for which the private placement process is less costly and more familiar.^[12][13]

Tier 1 offerings remain subject to state Blue Sky registration requirements, which the Government Accountability Office identified as a principal reason for the historically low utilisation of Regulation A prior to the JOBS Act. The state-by-state registration process adds cost and time to Tier 1 offerings, making them rare in practice.^[2]

Critics of the JOBS Act argued that its provisions, including Title IV, reduced investor protections. Consumer and investor advocacy organisations, including AARP, opposed the legislation, and some securities regulators raised concerns that the removal of certain disclosure requirements was not in the spirit of the legislation.^[16]

Completion of a Tier 2 Regulation A offering does not automatically result in a public listing; however, it qualifies issuers to seek quotation or listing on several trading platforms. Securities sold in a Regulation A offering are not restricted securities and may be freely resold by purchasers after the offering closes, subject to applicable affiliate resale rules.^[4]

Since November 2015, any company completing a Tier 2 Regulation A offering has been eligible to apply for quotation on the OTC Markets Group's OTCQB or OTCQX tiers. To initiate trading, a broker-dealer must sponsor the issuer by filing a Form 211 with FINRA, a process that typically takes four to eight weeks. The OTCQB and OTCQX are operated by OTC Markets Group and are not national securities exchanges; they function as alternative trading venues used primarily by smaller public companies.^[17]

Equity crowdfunding platform StartEngine has facilitated Regulation A+ campaigns.^[18] The first successful Regulation A+ campaign was completed by automotive startup Elio Motors, raising nearly $17 million from 6,600 investors. The campaign was designed, produced and marketed by CrowdfundX,^[19] a financial marketing firm based in Los Angeles. Elio Motors closed out their Regulation A+ offering in February, 2016, and subsequently listed to the OTCQX,^[20] making it the first crowdfinanced IPO in the United States.^[21] In July, 2017, Myomo, a medical device maker out of Boston, MA, became the first crowdfinanced IPO to list shares to the NYSE. CrowdfundX also marketed this historic Reg A+ IPO.

The first real estate lending marketplace to obtain SEC qualification utilizing an amended Tier 1 Regulation A offering was Groundfloor, achieving the feat on August 31, 2015.^[22] This made Groundfloor the first marketplace open to nonaccredited investors.^[23]

On November 15, 2022, CubCrafters, a light aircraft manufacturer, qualified under Regulation A to complete a capital raise, becoming the first established airplane company to use this framework.^[24]

On July 31, 2018, InSitu Biologics qualified under Regulation A+ to launch a $10 million stock offering for AnestaGel™, the first non-opioid painkiller developed under a Reg A+ raise to address the opioid and fentanyl epidemic.^[25]

On Dec. 3rd, 2015, real estate crowdfunding company Fundrise used the newly expanded Regulation A rules to raise capital for the launch of the world's first online Real Estate Investment Trust.

On Apr. 26th, 2021, fine wine and spirit investment firm Vint qualified under Regulation A to offer collections of fine wine and spirits on the world's first online fine wine and spirits investment platform.^[26]

In June 2016, American Homeowner Preservation opened a Regulation A+ offering with what has been called "probably the lowest investment minimum"^[27] of any Regulation A+ offering. Their minimum investment is $100.

Regulation A allows companies to conduct a publicity campaign and to solicit indications of interest from the public to assess the level of interest in investing in the company.^[28] This is intended to help the company decide whether to proceed with a Reg A offering.^[29]

• United States Securities and Exchange Commission (SEC) – Official site
• Adopting Release for the amendments to Regulation A
• Guidance on the Application of Regulation A