Regulation A, also known as Reg A/+, is a securities law that allows companies to offer and sell securities to the public without having to register with the Securities and Exchange Commission (SEC) under certain circumstances. In this article, we’ll discuss what regulation A is, what types of securities can be offered, and what the benefits and drawbacks are of using this exemption.

What is Regulation A?

Regulation A is a securities law that provides an exemption from registration requirements for certain securities offerings. The SEC amended Reg A in 2015, Reg A+, creating two tiers: Tier 1 and Tier 2. Tier 1 offerings allow companies to raise up to $20 million in a 12-month period, while Tier 2 offerings allow companies to raise up to $75 million in a 12-month period.

What Types of Securities can be Offered?

Reg A allows companies to offer and sell equity, debt, and convertible securities to the public. The most common securities offered under Reg A are common stock and preferred stock. However, companies can also offer other types of securities, such as warrants and options.

Benefits and Drawbacks of Reg A

There are several benefits and drawbacks to using Reg A for securities offerings.

Benefits:

1. Reduced Cost: Reg A offerings are generally less expensive than traditional public offerings because they are exempt from SEC registration requirements.
2. Access to Capital: Reg A offerings can provide companies with access to capital that they may not have been able to raise otherwise.
3. Increased Liquidity: Reg A offerings can provide companies with increased liquidity, as their securities can be freely traded on the secondary market.

Drawbacks:

1. Disclosure Requirements: Companies must provide certain disclosure documents to potential investors, such as an offering circular, which can be time-consuming and costly to prepare.
2. State Blue Sky Laws: Reg A offerings are still subject to state securities laws, which can be complex and vary by state.
3. Limited Marketability: Although Reg A securities can be traded on the secondary market, there may be limited marketability, which can affect the value of the securities.

Conclusion

This only scratches the surface. While, Regulation A can provide companies with an alternative way to raise capital through securities offerings without having to register with the SEC, consulting with an experienced securities attorney can help you navigate the regulatory requirements and determine whether Reg A+ is the right choice for your offering.