What Is Regulation A? Definition, Update, Documentation, and Tiers

Regulation A is an exemption under the Securities Act of 1933 that lets companies offer and sell securities to the public without full SEC registration. It provides a simplified path for smaller issuers to raise capital while requiring specific disclosure and filing steps to protect investors.

Key takeaways

• Regulation A offers a registration exemption for public securities offerings, subject to SEC filing and disclosure requirements.
• Updated rules (2015) created two tiers with different size limits and reporting obligations.
• Tier 1: up to $20 million in a 12‑month period; state qualification required; no ongoing SEC reporting.
• Tier 2: up to $75 million in a 12‑month period; audited financials and ongoing SEC reports required; state qualification preempted.
• Issuers must state the applicable tier on the offering circular. Tier 2 limits investments by non‑accredited investors.

How Regulation A works

Issuers using Regulation A must file an offering statement with the SEC that includes an offering circular — a disclosure document comparable to a prospectus. The offering circular must be provided to potential investors and must clearly state whether the offering is conducted under Tier 1 or Tier 2, because the tiers impose different regulatory and investor protections.

Issuers can choose among a few permitted formats for the offering circular and may, in some cases, use streamlined financial statements (with different audit and reporting rules depending on the tier).

Tier 1 vs. Tier 2

Tier 1

• Offering cap: $20 million in any 12‑month period.
• SEC filing: offering statement must be filed with the SEC.
• State regulation: offerings must be qualified in each state where securities are sold (subject to state “blue sky” laws).
• Reporting: no ongoing SEC reporting requirement after qualification, but the issuer must file a report on the offering’s final status.

Tier 2

• Offering cap: $75 million in any 12‑month period.
• SEC filing: offering statement must be filed with the SEC.
• State regulation: state registration and qualification requirements are preempted (no state qualification required).
• Financials and reporting: audited financial statements are required; issuers must file ongoing reports with the SEC (including final status).
• Investor limits: non‑accredited investors face limits on how much they may invest (under SEC rules, generally capped at the greater of 10% of annual income or net worth).

Advantages and limitations

Advantages:
* Easier access to public capital compared with a full registered offering.
* Flexibility in disclosure format and potential for streamlined financial presentation.
* For many issuers, fewer ongoing obligations than a full public company until specific thresholds are met.

Limitations:
* Still requires substantive disclosure and SEC review of the offering statement.
* Tier 1 offerings must satisfy state qualification, which can add complexity and cost.
* Tier 2 requires audited financials and ongoing reporting, increasing compliance costs.
* Investment limits for non‑accredited investors in Tier 2 can restrict retail participation.

Investor considerations

Investors should carefully review the offering circular to determine:
* Which tier applies and what protections or limits that tier imposes.
* The issuer’s audited financial condition (if Tier 2) and ongoing reporting commitments.
* Any investor eligibility or purchase limits, particularly for non‑accredited investors.

Conclusion

Regulation A provides a middle ground between private placements and full public registration, enabling smaller and mid‑sized companies to raise capital from the public with tailored disclosure and reporting requirements. Choosing between Tier 1 and Tier 2 depends on the issuer’s fundraising needs, tolerance for state qualification, and willingness to meet audited‑financial and ongoing reporting obligations.