What Is a Regulation A+ Offering and How Does It Work?

Regulation A+ is a securities exemption allowing smaller companies to raise capital from the general public without the extensive registration requirements of a traditional initial public offering (IPO). Often called a “mini-IPO,” this framework emerged from Title IV of the Jumpstart Our Business Startups (JOBS) Act of 2012. Its purpose is to provide a more accessible pathway for companies to access public capital markets. Regulation A+ modernized an existing, less frequently used exemption, significantly increasing fundraising limits and streamlining processes.

Core Components

Regulation A+ is structured into two distinct tiers, each with specific requirements and limitations. Tier 1 permits offerings of up to $20 million within a 12-month period, while Tier 2 allows for offerings of up to $75 million in the same timeframe. Most capital raised through Regulation A+ has occurred under Tier 2 due to its broader reach and preemption benefits.

A primary distinction between the tiers lies in financial statement requirements. Tier 1 generally permits the use of unaudited financial statements. Tier 2 offerings mandate audited financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for the two most recently completed fiscal years, or since inception if shorter.

Another divergence involves state securities (blue sky) law compliance. Tier 1 offerings are subject to registration and qualification requirements in each state where securities are offered or sold, adding complexity and cost. Tier 2 offerings generally preempt state securities law registration and qualification requirements for securities offered to “qualified purchasers.”

Regarding ongoing reporting, Tier 1 offerings typically have fewer post-qualification obligations, primarily requiring an exit report. Tier 2 issuers are subject to continuous reporting requirements with the SEC, including annual reports on Form 1-K, semi-annual reports on Form 1-SA, and current event reports on Form 1-U. These disclosures impose compliance burdens.

Eligibility and Limitations

Companies utilizing a Regulation A+ offering must meet specific eligibility criteria. Generally, only U.S. or Canadian companies with their principal place of business in those countries are eligible. The exemption is primarily designed for non-reporting companies, not already subject to ongoing reporting requirements.

Certain types of issuers are excluded from using Regulation A+. These include investment companies (e.g., mutual funds) and “blank check” companies (development-stage companies without a specific business plan). Companies issuing fractional undivided interests in oil or gas rights are also not eligible.

Regulation A+ permits both primary offerings by the issuer and secondary offerings by selling security holders. However, limitations exist on the amount of securities sold by existing security holders, particularly affiliates. In an initial Regulation A offering and any subsequent offering within the first 12 months, sales by selling security holders are capped at no more than 30% of the aggregate offering price. This ensures the offering primarily serves the company’s capital-raising needs.

Preparing an Offering

Launching a Regulation A+ offering necessitates thorough preparation of various legal and financial documents. The central document is Form 1-A, the offering statement filed with the SEC. This comprehensive filing includes detailed information about the company, its financial condition, and the terms of the securities offered. Preparing Form 1-A requires careful attention to disclosure requirements for compliance and investor information.

Within Form 1-A, the offering circular is a key component, similar to a prospectus. This document outlines the company’s business operations, management team, risk factors, and the specific use of proceeds. It also includes the offering price, number of shares sold, and details about any underwriting or sales commissions. This is the primary disclosure document for potential investors.

Financial statements are an integral part of Form 1-A, with requirements varying by tier. For Tier 1 offerings, financial statements must be prepared in accordance with U.S. GAAP. Tier 2 offerings require audited financial statements for the two most recently completed fiscal years, or since inception if shorter. This audit requirement for Tier 2 adds scrutiny and enhances investor confidence.

Experienced legal counsel is important during preparation. Attorneys assist in drafting Form 1-A and the offering circular, ensuring regulatory compliance and accurate disclosures. An independent auditor is necessary for Tier 2 offerings to prepare audited financial statements. Other professionals, such as marketing specialists and transfer agents, also play a role.

Navigating the Offering Process

Once preparatory documents are complete, the formal process of a Regulation A+ offering begins with filing Form 1-A with the Securities and Exchange Commission (SEC). This filing is submitted electronically through the SEC’s EDGAR system. Issuers can submit a draft offering statement for confidential, non-public review by SEC staff before a public filing. This allows companies to receive feedback and make revisions without immediate public scrutiny.

Following public filing, the SEC staff reviews Form 1-A and may issue comments or requests for additional information. The issuer then responds to these comments through amendments. This process continues until the SEC qualifies the offering statement, allowing the offering to commence.

A unique feature of Regulation A+ is the “test the waters” provision. This allows companies to gauge investor interest before incurring full preparation and filing costs. Issuers can communicate with potential investors through various channels, including social media and email, to solicit non-binding indications of interest. This pre-filing marketing helps assess market demand and refine the offering strategy.

After qualification, the company can actively market and sell its securities. The offering circular must be provided to prospective investors before or at the time of sale. Unlike traditional IPOs, securities sold in a Regulation A+ offering are generally not considered “restricted securities,” allowing for immediate resale. The offering concludes once the maximum capital is raised or the offering period expires.

Investor Participation

Regulation A+ broadens the pool of potential investors beyond traditional accredited investors. Both accredited and non-accredited investors are permitted to participate. This allows a wider audience, including the general public, to invest in private companies, unlike many other private placement exemptions.

For non-accredited investors in Tier 2 offerings, specific investment limitations apply. These individuals are restricted from investing more than 10% of the greater of their annual income or net worth in a single Regulation A+ offering. This limitation protects investors from disproportionate, potentially speculative, investment. Issuers may rely on the investor’s representation regarding their income or net worth, provided they do not have reason to believe it is untrue.

Accredited investors are not subject to these investment limitations in Tier 2 offerings, acknowledging their ability to assess greater financial risk. Disclosures in the offering circular and ongoing reporting for Tier 2 issuers provide transparency, equipping investors with information for informed decisions and offering some protection.