Regulation A: Offerings Under $50 Million
Section 3(b) of the Securities Act grants the SEC discretion to exempt certain public offerings under $50 million from the Act’s registration requirements. The SEC used this discretion to promulgate Regulation A (Rules 251–263). Regulation A creates a sort of mini-public offering regime for small offerings that satisfy all the elements of the exemption. In 2015 the SEC adopted Regulation A+, which is an update and expansion of Regulation A. (“Regulation A+” is just an industry nickname. Both names refer to the same regulation, and you may see either one.)
Under Regulation A, businesses not seeking to raise more than $50 million in equity over a one-year period are exempt from the SEC registration process. The regulation provides businesses with two tiers of offerings. Tier 1 offerings can raise up to $20 million in a 12-month period, provided sales by company insiders total no more than $6 million. Tier 2 offerings can raise up to $50 million in a 12-month period, provided sales by company insiders total no more than $15 million. Businesses that are Tier 2 offerings are required to meet additional requirements, including:
- • Providing audited financial statements
- • Filing annual, semiannual, and current event reports
- • Limiting non-accredited investors to investments that do not exceed 10% of the greater of their annual income or net worth (Tier 1 provides no limitations on investors.)
Although the relatively low dollar limitation may cramp an issuer’s style, proceeding under Regulation A offers several advantages. There is no restriction on the number of offerees, no geographical restriction on sales or resales, and (for Tier 1) no qualification requirements for investors. (Many exempt transactions are subject to limitations on the number and type of investors. For example, Regulation D, Rule 506, which we discuss in the next chapter, imposes a limit of 35 non-ac