Regulation A Offerings: How Mini-IPOs Work and What Issuers Need to Know

How Regulation A Offerings Work

Regulation A, as amended in 2015 by the JOBS Act provisions creating what is commonly called "Regulation A+" or "Reg A+," provides an exemption from full Securities Act registration that allows companies to raise capital through a public offering with reduced but still substantial disclosure requirements. The company files an offering statement on Form 1-A with the SEC, undergoes a qualification process similar to SEC review of an S-1, and upon qualification can offer and sell securities to the public including non-accredited investors.

The Regulation A exemption is structured in two tiers. Tier 1 allows offerings of up to $20 million in a 12-month period. Tier 2 allows offerings of up to $75 million. The tiers differ in their disclosure requirements, financial statement standards, state securities registration obligations, and ongoing reporting requirements. Most companies pursuing Regulation A offerings choose Tier 2 because of its higher limit and state preemption advantages.

The SEC Qualification Process

Unlike an S-1 registration statement which becomes effective when the SEC declares it effective, a Regulation A offering statement requires SEC qualification. The Division of Corporation Finance reviews the offering statement and issues comment letters addressing disclosure adequacy. The qualification process typically takes 3-6 months, though well-prepared filings can move more quickly. "Testing the waters" provisions allow companies to solicit indications of interest from potential investors before and during the qualification process.

Regulatory Risks and Common Mistakes

The most common mistake in Regulation A offerings is treating the process as simpler than it is. While Regulation A involves less disclosure than an S-1, it is not a shortcut. The SEC reviews offering statements with the same analytical rigor applied to registration statements. Companies that file inadequately prepared offering statements face extensive comment letters, delayed qualification, and in some cases, SEC refusal to qualify the offering.

For companies in industries with heightened regulatory scrutiny, including cannabis, cryptocurrency, and AI, Regulation A offerings present additional challenges. Industry-specific risk factors must be comprehensive. Business descriptions must be factual and not promotional. Financial projections, if included, must comply with SEC guidance. Securities counsel experienced in both Regulation A mechanics and industry-specific disclosure requirements is essential.