10.3. Small Public Offerings: Regulation A

The Securities Act grants the SEC discretion to exempt certain small public offerings from the Act’s registration requirements. The SEC exercises this authority in Regulation A, which creates a sort of mini–public offering regime for small offerings. 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 on the exam.)

In general, Regulation A may be used for equity or debt offerings by U.S. and Canadian issuers with a legitimate business plan. Investment companies cannot use Regulation A. Like many of the exemptions in this chapter, Regulation A has provisions to explicitly exclude bad actors, which are issuers who have disqualified themselves through certain types of misconduct. These provisions supplement the SEC and FINRA’s other mechanisms for disqualifying certain persons from holding positions of responsibility in the securities industry based on their past actions.

Regulation A offerings are divided into two tiers. Tier 1 allows a business to raise up to $20 million in a 12-month period, while Tier 2 allows up to $75 million in a 12-month period. Businesses that choose Tier 2 have to meet additional requirements, including:

• Providing audited financial statements