Regulation A+What is it and what does it mean?
- Tier 1, for securities offerings of up to $20 million in a 12-month period
- Tier 2, for securities offerings of up to $50 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.
Regulation A allows the general public to invest in private companies. With the exception of securities that will be listed on a national securities exchange upon qualification, purchasers in Tier 2 offerings must either be accredited investors, as that term is defined in Regulation D (SEC), or be subject to certain limitations on the size of their investment.
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.
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 by such issuers, do remain subject to some state law enforcement and anti-fraud rules. Issuers in Tier 2 offerings may still be subject to filing fees in the states in which they intend to offer securities.
Testing The Waters
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. This is intended to help the company decide whether to proceed with a Reg A+ offering.
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