TLDR
Regulation A allows raises up to $75 million but costs $150K-$500K+ to execute properly, takes 6-12 months for SEC qualification, and requires ongoing reporting that many issuers do not anticipate. It works well for consumer-facing brands with existing audiences. It fails for companies that expect the offering itself to generate investor interest.
What Regulation A+ Actually Is
Regulation A+ is one of the most misunderstood capital raising exemptions in securities law. It is not a private placement. It is not a simplified IPO. It is a distinct offering framework that allows companies to raise capital from both accredited and non-accredited investors through a public offering process that includes SEC qualification of a disclosure document called an Offering Circular.
The JOBS Act of 2012 directed the SEC to substantially revise the original Regulation A, which had been largely unused because its $5 million offering limit was too low to justify the compliance costs. The SEC's implementing rules, adopted in 2015, created the modern two-tier framework: Tier 1 for offerings up to $20 million and Tier 2 for offerings up to $75 million in a 12-month period. The revised regulation, commonly called "Regulation A+," has become a significant capital raising tool, particularly for companies that want to access retail investors without the full cost and burden of an IPO.
The key structural advantages of Regulation A+ are threefold. First, it permits general solicitation and advertising, which means the issuer can market the offering publicly. Second, it does not restrict sales to accredited investors, which means retail investors can participate. Third, the securities issued under Tier 2 are freely tradeable and eligible for exchange listing, which means investors have liquidity options that are not available in Regulation D offerings.
Tier 1 vs. Tier 2: Choosing the Right Structure
The choice between Tier 1 and Tier 2 is primarily driven by three factors: the amount of capital to be raised, the issuer's willingness to assume ongoing reporting obligations, and the need for state blue sky preemption. Tier 1 is appropriate for offerings up to $20 million where the issuer does not want ongoing SEC reporting obligations and is willing to comply with state registration requirements. Tier 2 is appropriate for offerings up to $75 million where the issuer is willing to assume ongoing reporting obligations in exchange for state registration preemption and higher offering limits.
The state preemption distinction is practically significant. Tier 1 issuers must register or qualify the offering in every state where securities are offered or sold, which can involve filing applications in dozens of states, paying filing fees, and waiting for state approval. The NASAA coordinated review program can streamline this process, but it still adds time and cost. Tier 2 issuers benefit from federal preemption of state registration requirements, which significantly simplifies the compliance process and reduces time to market.
For most companies raising more than $5 million, Tier 2 is the better choice despite the ongoing reporting obligations. The state preemption alone saves significant time and cost, and the ongoing reporting requirements (annual, semiannual, and current event reports) are substantially less burdensome than full Exchange Act reporting. Companies that are considering a future IPO or exchange listing also benefit from Tier 2 because the reporting framework provides a natural transition to full SEC reporting when the company is ready.
The SEC Qualification Process
The qualification process begins with filing Form 1-A with the SEC on EDGAR. Form 1-A includes the Offering Circular, which is the primary disclosure document, along with exhibits including the articles of incorporation, bylaws, material contracts, and the opinion of counsel regarding the legality of the securities. The filing is publicly available on EDGAR from the date of filing, which means investors and competitors can access it immediately.
After filing, the SEC staff reviews the Offering Circular and issues comment letters similar to those issued in the registration statement review process. The comment letter process for Regulation A+ filings follows the same general principles discussed elsewhere in this publication: the staff is evaluating whether the disclosure is adequate, accurate, and compliant with applicable rules. The issuer responds to each comment and may need to amend the Offering Circular to address the staff's concerns.
Qualification occurs when the SEC staff determines that the Offering Circular meets the applicable disclosure requirements. Unlike registration statements, which become effective by operation of law, Regulation A+ offerings are"qualified" by the SEC staff, which means the staff has affirmative control over the timeline. The qualification process typically takes 60 to 120 days from the initial filing, but this timeline varies significantly based on the quality of the initial filing and the complexity of the offering.
Preparing the Offering Circular
The Offering Circular is the heart of the Regulation A+ offering. It serves the same function as a prospectus in a registered offering: it provides investors with the information they need to make an informed investment decision. The disclosure requirements are specified in Form 1-A and include a description of the business, risk factors, use of proceeds, dilution, capitalization, management's discussion and analysis of financial condition and results of operations, description of the securities, and financial statements.
The quality of the Offering Circular directly affects the qualification timeline. A well-prepared Offering Circular with thorough, industry-specific risk factors, accurate business descriptions, and clear financial disclosure generates fewer SEC comments and achieves qualification faster. A poorly prepared Offering Circular with generic risk factors, vague business descriptions, and inadequate financial disclosure generates multiple rounds of comments and significant delays.
For issuers in emerging industries, the Offering Circular requires particular attention to industry-specific disclosure challenges. Cannabis companies must address federal illegality prominently and specifically. AI companies must accurately describe technology capabilities without overstating current functionality. Cryptocurrency companies must include a thorough legal analysis of token classification. The SEC staff assigns these filings to reviewers with industry expertise, and generic or boilerplate disclosure will not survive the review process.
Testing the Waters: Pre-Qualification Marketing
One of the most significant structural advantages of Regulation A+ is the ability to "test the waters" before or during the qualification process. Testing the waters allows the issuer to solicit indications of interest from potential investors using written or oral communications, without first having to file or qualify the Offering Circular. This provision allows companies to validate market demand before committing the full resources required for qualification.
Testing the waters communications must be filed as exhibits to Form 1-A, and they must comply with the antifraud provisions of the securities laws. They cannot contain false or misleading statements, and they cannot omit material information that would be necessary to make the communications not misleading. No money can be collected during testing the waters. Indications of interest are non-binding and create no obligation for the investor or the issuer.
From a practical standpoint, testing the waters is most valuable for companies that are uncertain whether there is sufficient investor demand to justify the cost of a Regulation A+ offering. By conducting a testing the waters campaign before filing Form 1-A, the company can assess investor interest, refine its marketing message, and build a pipeline of potential investors. If the response is insufficient, the company can choose not to proceed with the offering, having saved the qualification costs.
Ongoing Reporting Obligations
Tier 2 issuers assume ongoing reporting obligations that continue until the reporting obligation is suspended or terminated. The three primary reports are the annual report on Form 1-K, the semiannual report on Form 1-SA, and the current event report on Form 1-U. These reports are filed with the SEC on EDGAR and are publicly available.
Form 1-K is due within 120 calendar days after the end of the fiscal year and includes updated business information, management's discussion and analysis, audited financial statements, and information about the company's officers, directors, and significant shareholders. Form 1-SA is due within 90 calendar days after the end of the first six months of the fiscal year and includes interim financial statements and updated MD&A. Form 1-U is required for current events including fundamental changes, bankruptcy, material modifications to securities, changes of accountant, non-reliance on previously filed financial statements, and changes in certifying accountant.
Companies that fail to file required reports risk losing their Regulation A+ eligibility for future offerings and may face SEC enforcement action. The reporting obligations should be viewed not as a burden but as a mechanism for maintaining investor confidence, demonstrating management transparency, and building the company's track record for a potential future IPO or exchange listing.
State Securities Law Compliance
The state compliance landscape for Regulation A+ depends entirely on whether the offering is structured as Tier 1 or Tier 2. Tier 2 offerings benefit from federal preemption of state registration requirements under Section 18 of the Securities Act. States may still require notice filings, collect filing fees, and enforce their antifraud provisions, but they cannot require registration or qualification at the state level.
Tier 1 offerings do not benefit from federal preemption. The issuer must comply with the securities registration or exemption requirements of every state in which securities are offered or sold. The NASAA coordinated review program provides a mechanism for state reviews to proceed in parallel with the SEC review, but each participating state retains the right to impose additional conditions or deny registration.
For both tiers, state antifraud provisions remain fully applicable. State securities regulators can bring enforcement actions for fraud, material misrepresentation, and material omission regardless of whether the offering is registered or exempt at the state level. This means that the quality and accuracy of the Offering Circular matters not only for SEC qualification but also for state enforcement exposure.
Emerging Industry Considerations
Cannabis companies can use Regulation A+ to raise capital, but the qualification process is typically longer and more intensive than for companies in traditional industries. The SEC staff will closely examine the Offering Circular for adequate disclosure of federal illegality risks, the impact of IRC Section 280E on financial results, banking and payment processing risks, state regulatory compliance, and the potential for federal enforcement action. Companies that address these issues proactively in the initial filing generally achieve qualification more efficiently.
AI companies are particularly well-suited for Regulation A+ offerings because the exemption allows them to raise capital from retail investors who understand and are enthusiastic about AI technology. The key disclosure challenge for AI companies is accurately describing their technology without overstating current capabilities. The SEC staff compares technology descriptions in the Offering Circular against the company's marketing materials, website, and public statements, and any inconsistency will generate comments.
Cryptocurrency companies have successfully used Regulation A+ for token offerings, but these offerings face the most intensive SEC review. The Offering Circular must include a comprehensive legal analysis of whether the token constitutes a security under the Howey test, detailed disclosure of the regulatory landscape, accurate description of the underlying technology, and thorough risk factors addressing the unique risks of digital asset investment. Several token offerings have been qualified under Regulation A+, demonstrating that the pathway is viable but requires exceptional preparation and disclosure quality.
10 Key Points
- 1.Regulation A+ is not a private placement. It is a public offering exemption that allows companies to raise up to $75 million in a 12-month period through Tier 2 offerings with SEC-qualified disclosure documents.
- 2.Unlike Regulation D, Regulation A+ permits general solicitation and advertising, does not restrict sales to accredited investors, and results in securities that are freely tradeable and eligible for listing on national exchanges.
- 3.The qualification process involves filing an Offering Circular on Form 1-A with the SEC, which undergoes a staff review process similar to a registration statement on Form S-1.
- 4.Tier 1 offerings (up to $20 million) require state blue sky compliance in every state where securities are sold. Tier 2 offerings (up to $75 million) preempt state registration requirements.
- 5.Testing the waters provisions allow issuers to gauge investor interest before incurring the full cost of preparing and qualifying an offering circular, which is a significant structural advantage over registered offerings.
- 6.Tier 2 issuers have ongoing reporting obligations including annual reports on Form 1-K, semiannual reports on Form 1-SA, and current event reports on Form 1-U.
- 7.Non-accredited investors in Tier 2 offerings are limited to investing no more than 10% of the greater of their annual income or net worth, creating a natural investor protection mechanism.
- 8.Cannabis companies can use Regulation A+ but face heightened scrutiny in the qualification process because the SEC staff will closely examine risk disclosure related to federal illegality.
- 9.AI companies benefit from Regulation A+ because it allows them to raise capital from retail investors who may be enthusiastic about AI technology while providing the regulatory framework for proper disclosure.
- 10.The total cost of a Regulation A+ offering, including legal, accounting, SEC qualification, and marketing, typically ranges from $150,000 to $350,000, making it suitable for companies raising at least $5 million to justify the expense.
Frequently Asked Questions
What is Regulation A+?
Regulation A+ is an exemption from SEC registration that allows companies to conduct public offerings of securities. It was significantly expanded by the JOBS Act of 2012 and the SEC's implementing rules adopted in 2015. It provides two tiers: Tier 1 for offerings up to $20 million and Tier 2 for offerings up to $75 million in a 12-month period.
How is Regulation A+ different from an IPO?
A Regulation A+ offering is less expensive and less burdensome than a full registration statement for an IPO, but it involves a similar SEC review process. The key differences include lower ongoing reporting obligations, the ability to test the waters before filing, no requirement for quarterly reporting (only semiannual for Tier 2), and the option to use audited financial statements prepared under GAAP rather than PCAOB standards for Tier 1 offerings.
Who can use Regulation A+?
Regulation A+ is available to companies organized in and with principal place of business in the United States or Canada. It is not available to SEC reporting companies, investment companies, blank check companies, or companies that have not filed required ongoing Regulation A reports. Companies with no specific business plan or that have indicated their business plan is to engage in a merger or acquisition with an unidentified company are also excluded.
What is the difference between Tier 1 and Tier 2?
Tier 1 allows offerings up to $20 million in a 12-month period, requires state blue sky compliance, and does not require ongoing SEC reporting after the offering. Tier 2 allows offerings up to $75 million, preempts state registration requirements, requires ongoing reporting (annual, semiannual, and current event reports), requires audited financial statements, and imposes investment limits on non-accredited investors.
Can non-accredited investors participate in Regulation A+ offerings?
Yes. This is one of the primary advantages of Regulation A+ over Regulation D. There are no investor qualification requirements for Tier 1. For Tier 2, non-accredited investors may invest up to 10% of the greater of their annual income or net worth. There are no investment limits for accredited investors in either tier.
What does 'testing the waters' mean?
Testing the waters allows issuers to gauge investor interest before or during the SEC qualification process. The issuer can solicit indications of interest from potential investors using written or oral communications. No money can be collected during testing the waters, and any solicitation materials must be filed with the SEC. This provision allows companies to validate market demand before incurring the full cost of qualification.
What is an Offering Circular?
The Offering Circular is the primary disclosure document for a Regulation A+ offering, filed with the SEC on Form 1-A. It contains information similar to a registration statement prospectus, including a description of the business, risk factors, use of proceeds, capitalization, management's discussion and analysis, financial statements, and the terms of the securities being offered.
How long does the SEC qualification process take?
The SEC qualification process typically takes 60 to 120 days from the initial filing, depending on the complexity of the offering, the quality of the initial filing, and the SEC staff's review workload. Comment letter responses can extend this timeline. Companies that file well-prepared offering circulars with thorough disclosure generally receive fewer comments and achieve qualification more quickly.
What are the ongoing reporting requirements for Tier 2?
Tier 2 issuers must file annual reports on Form 1-K (within 120 calendar days after fiscal year end), semiannual reports on Form 1-SA (within 90 calendar days after the end of the first six months of the fiscal year), current event reports on Form 1-U (for specified material events), and exit reports on Form 1-Z when the reporting obligation is suspended.
Can I list my securities on an exchange after a Regulation A+ offering?
Yes. Securities issued under Tier 2 of Regulation A+ are eligible for listing on national securities exchanges such as NYSE, NYSE American, and Nasdaq, subject to meeting the applicable exchange listing standards. This is a significant advantage over Regulation D, where securities are restricted and not eligible for exchange listing without subsequent registration.
How does Regulation A+ work for cannabis companies?
Cannabis companies can use Regulation A+ but face heightened SEC scrutiny during qualification. The offering circular must thoroughly disclose risks related to federal illegality, IRC Section 280E tax treatment, banking restrictions, state regulatory uncertainty, and the potential for federal enforcement action. The SEC staff will closely review whether these disclosures are adequate and whether the company's business description and financial projections appropriately account for these risks.
How does Regulation A+ work for AI companies?
AI companies are well-suited for Regulation A+ offerings because the exemption allows them to raise capital from retail investors who understand and are enthusiastic about AI technology. The offering circular must accurately describe the company's AI technology capabilities, distinguish between current functionality and planned development, address data governance and privacy risks, and disclose dependencies on key personnel and third-party technology.
What financial statements are required?
Tier 1 offerings require financial statements reviewed by an independent accountant. Tier 2 offerings require financial statements audited by an independent auditor in accordance with either PCAOB or AICPA standards. The financial statements must cover the two most recently completed fiscal years (or since inception if the company has been in existence for less than two years).
Can I use Regulation A+ if I am already a reporting company?
No. SEC reporting companies under Section 13 or 15(d) of the Exchange Act are not eligible to use Regulation A+. This restriction is designed to preserve Regulation A+ as an on-ramp for companies that are not yet in the full SEC reporting system. Companies that become Exchange Act reporting companies after completing a Regulation A+ offering must transition to full reporting requirements.
What are the state compliance requirements?
For Tier 1 offerings, the issuer must comply with state securities registration or exemption requirements in every state where securities are offered or sold. For Tier 2 offerings, federal preemption eliminates state registration requirements, but states may still require notice filings, collect fees, and enforce antifraud provisions. The coordinated review program through NASAA can streamline Tier 1 state compliance.
How much does a Regulation A+ offering cost?
Total costs typically range from $150,000 to $350,000, including legal fees for offering circular preparation and SEC qualification, accounting fees for financial statement audit, SEC filing fees, state filing fees (Tier 1), marketing and investor acquisition costs, transfer agent fees, and platform fees if using an online funding portal. These costs make Regulation A+ most suitable for offerings of $5 million or more.
Can I raise money through a website in a Regulation A+ offering?
Yes. Regulation A+ permits general solicitation, and many Regulation A+ offerings are conducted partially or entirely online through funding portals and company websites. However, the offering page must comply with SEC rules regarding communication with investors, all solicitation materials must be filed with the SEC, and the platform must comply with applicable broker-dealer registration requirements.
What happens if I don't complete the offering?
If the offering is not completed, the issuer must file a termination report on Form 1-Z with the SEC. Any funds collected from investors must be returned. The offering circular that was qualified remains a public document. There is no penalty for not completing an offering, but the costs incurred in the qualification process are not recoverable.
How does a flat-fee arrangement help with Regulation A+ offerings?
Regulation A+ offerings involve extensive legal work including offering circular preparation, SEC comment letter responses, state compliance, closing mechanics, and ongoing reporting. Under hourly billing, these costs are unpredictable and can deter companies from pursuing the offering or pressure them to cut corners on disclosure quality. Flat-fee arrangements provide cost certainty and ensure comprehensive legal work throughout the offering process.
Can I conduct a Regulation A+ offering for cryptocurrency or tokens?
Yes, but the SEC has applied heightened scrutiny to token offerings under Regulation A+. The offering circular must include a thorough Howey test analysis, clearly disclose the regulatory uncertainty surrounding digital assets, describe the technology and its current development stage accurately, and address token custody, security, and transferability. Several token offerings have been qualified under Regulation A+, but the qualification process tends to be longer and more intensive.
What is the most important thing to know about Regulation A+?
The most important thing is that Regulation A+ is a real public offering with real SEC oversight. It is not a shortcut or a loophole. Companies that approach Regulation A+ with the same seriousness and commitment to disclosure quality as they would a registered offering achieve the best outcomes. Companies that view it as an easier alternative to registration often face extended review periods, additional comment letters, and delayed qualification.
This article was written by Frederick M. Lehrer, Esq., a former SEC Division of Enforcement Staff Attorney and Special Assistant United States Attorney (Southern District of Florida) with over 30 years of securities law experience. Florida Bar No. 888400.