Regulation A, also referred to as Reg A, provides a small offering exemption from registration for public securities offerings and was updated to be more accessible to small and midsize companies. This change was meant to provide a more effective capital-raising tool while still providing essential protections to investors.

Regulation A is divided into two offering tiers: Tier 1 and Tier 2. Both tiers have their own advantages and distinct requirements.

Tier 1: is for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer.

Tier 2: is for offerings of securities of up to $75 million in a 12-month period, with not more than $22.5 million in offers by selling security-holders that are affiliates of the issuer. Companies can choose to proceed under the requirements for either tier for offerings up to $20 million.

Common requirements for both Tier 1 and Tier 2 offerings include certain issuer eligibility criteria (e.g., the issuer must be organized under the laws of a state or territory of the United States or the District of Columbia), bad actor disqualification provisions, and the requirement to file offering statements and reports with the SEC.

However, Tier 2 has additional investor protection requirements compared to Tier 1. For instance, there are limitations on the amount a non-accredited investor can invest in a Tier 2 offering — no more than 10% of the greater of annual income or net worth for individuals and 10% of the greater of annual revenue or net assets at fiscal year-end for entities.

Tier 2 offerings also necessitate audited financial statements and ongoing reports, including annual reports, semiannual reports, and current event reports. One of the main benefits of Tier 2 offerings, though, is that issuers are not required to register or qualify their offerings with state securities regulators, which is a process known as “blue sky laws.” This federal preemption can save issuers time and money.

While Regulation A can be an attractive fundraising tool, companies should carefully consider the costs and benefits before proceeding. They must comply with regulatory requirements and ongoing reporting obligations. Additionally, securities sold in a Regulation A offering, like all securities, carry a risk of litigation or enforcement action if things go wrong. Therefore, it is advisable to seek legal advice when contemplating a Regulation A offering.