Regulation A+ Offerings Guide

Regulation A+ Offerings Allow Companies to Raise Up to $75 Million Without Registering with the SEC

Attorney Nick Oberheiden
Regulation A+ Offerings Guide
Team Lead

Introduced in 2015 under the Jumpstart Our Business Startups (JOBS) Act, Regulation A+ provides an exemption from registration for companies seeking to raise capital through the issuance of securities. While Regulation A+ offers more flexibility than many of the other federal securities registration exemptions, this increased flexibility comes with increased compliance obligations. As a result, informed decision-making is critical, and this starts with understanding all of the benefits, limitations, and risks of Regulation A+ and its alternatives.

With this in mind, here are the answers to some frequently asked questions (FAQs) about Regulation A+ offerings:

What is Regulation A+?

Regulation A+ is a federal rule that provides an exemption from the general requirement for securities offerings to be registered with the U.S. Securities and Exchange Commission (SEC). Complying with Regulation A+ allows companies that are seeking to raise capital through the issuance of securities to avoid the time and costs associated with SEC registration. This opens up the option to sell securities to a wide range of companies that might not be ready to move forward with an initial public offering (IPO).

But while companies that conduct securities offerings under Regulation A+ do not need to register their offerings with the SEC, other requirements apply. These include requirements to file annual reports with state securities regulators, provide audited financial statements, and provide updates to investors (for Tier 2 offerings), among others. As a result, company owners and executives need to think carefully about whether a Regulation A+ offering is the right choice—or whether an alternative such as a Regulation D offering or Section 4(a)(2) private placement might be a better approach.

Is Regulation A+ Different from Regulation A?

No, there is no difference between Regulation A+ and Regulation A, and does not alter or amend applicable law. Technically, Regulation A is the correct term, as there is no “Regulation A+” in the Federal Register. The term Regulation A+ came into use after the SEC amended Regulation A under the JOBS Act to expand the availability of its registration exemption.

How Much Capital Can Companies Raise Through Regulation A+ Offerings?

Regulation A+ allows companies to conduct two “tiers” of unregistered securities offerings. While Regulation A+ establishes some basic requirements for both tiers, each tier has its own specific requirements and investment limitations as well. The tiers of Regulation A+ offerings are:

Tier 1: Offering up to $20 million of a company’s securities in a 12-month period.
Tier 2: Offering up to $75 million of a company’s securities in a 12-month period.

As the SEC explains, “[f]or offerings of up to $20 million, companies can elect to proceed under the requirements for either Tier 1 or Tier 2.” Regarding the specific requirements for Tier 1 and Tier 2 Regulation A+ offerings, the SEC goes on to explain:

“[B]asic requirements applicable to both Tier 1 and Tier 2 offerings . . . include[e] company eligibility requirements, bad actor disqualification provisions, disclosure, and other matters. Additional requirements apply to Tier 2 offerings, including limitations on the amount of money a non-accredited investor may invest in a Tier 2 offering, requirements for audited financial statements and the filing of ongoing reports.”

This just scratches the surface of what company owners and executives need to know. While conducting a Regulation A+ offering is comparatively straightforward when considering many of the alternatives, a diligent approach to compliance is still essential. At Oberheiden P.C., we assist companies offering securities of all sizes with conducting Regulation A+ offerings and other types of unregistered securities offerings, and we can walk you through everything you need to know.

What Are the Company Eligibility Requirements Under Regulation A+?

As the SEC makes clear, “[n]ot all issuers are eligible to conduct offerings pursuant to Regulation A.” Conducting a Regulation A (or Regulation A+) offering is only an option for companies “organized in and with their principal place of business in the United States or Canada.” Additionally conducting a Regulation A+ offering is not an option for the following types of companies:

Companies registered under the Investment Company Act of 1940
Business development companies (BDCs)
Special purpose acquisition companies (SPACs)
Companies that are (or have been) subject to an SEC order “denying, suspending, or revoking the registration of a class of securities . . . entered within five years before the filing of the offering statement”
Companies classified as “bad actors” under SEC Rule 262.

Under SEC Rule 262, companies (and their owners, executives, and directors) can be classified as “bad actors” under various circumstances. These include having a securities-related conviction within the prior 10 years, being subject to a final order from the SEC, and being suspended or expelled from a national securities exchange or association, among others.

Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester

Former U.S. Attorney

Hon. Kevin McCarthy

55th Speaker, U.S. House of Representatives (ret.)

Government Consultant

Mike Pompeo

Of Counsel

Former U.S. Secretary of State

John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara

Federal Appeals Attorney

Nicholas B. Johnson

Former Prosecutor

Roger Bach

Former Special Agent (DOJ)

Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen

Former Supervisory Special Agent (FBI)

What is the Offering Statement Required for a Regulation A+ Offering?

For both Tier 1 and Tier 2 offerings, Regulation A+ requires companies to prepare an offering statement that they will provide to prospective investors. Companies conducting Regulation A+ offerings must also file their offering statements with the SEC using its Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The specific requirements for Regulation A+ offering statements are set forth in SEC Rule 252—and it is essential that companies work closely with experienced legal counsel to ensure that their offering statements include all required information.

Do I Need a Private Placement Memorandum (PPM) for a Regulation A+ Offering?

While an offering statement is required for a Regulation A+ offering, a private placement memorandum (PPM) is not. This is because a Regulation A+ offering is not a private placement. Rather, it is a public securities offering that is exempt from the registration requirements that would normally apply.

How Do You Conduct a Public Securities Offering Under Regulation A+?

While conducting a public securities offering under Regulation A+ starts with preparing a custom-tailored offering statement, this truly is just the beginning. However, as the SEC explains, companies also have the option of “testing the water” to see if moving forward with a Regulation A+ offering will meet their capital-raising needs effectively:

“Issuers are permitted to ‘test the water’ with, or solicit interest in a potential offering from, the general public either before or after the filing of the offering statement, provided that all solicitation materials include the legends required by the rules and, after publicly filing the offering statement, are preceded or accompanied by a preliminary offering circular or contain a notice informing potential investors where and how the most current preliminary offering circular can be obtained.”

With that said, companies must be extremely careful when promoting public securities offerings prior to filing an offering statement with the SEC. Going too far and conducting a noncompliant unregistered offering can prove extremely costly—and can potentially lead to the issuance of an SEC order triggering “bad actor” designation.

After preparing an offering statement and filing it with the SEC, companies conducting Regulation A+ offerings must continue to prioritize compliance—both when soliciting investors and afterward. Among other requirements, companies relying on Tier 1 offerings must update their offering statements to reflect sales and timely file Form 1-Z with the SEC, and companies conducting Tier 2 offerings have annual SEC reporting obligations. The ongoing reporting obligations for Regulation A+ offerings are set forth in SEC Rule 257.

What Are the Differences Between Regulation A+ and Regulation D?

There are several key differences between Regulation A+ and Regulation D. Most significantly, Regulation A+ provides a registration exemption for qualifying public securities offerings, while Regulation D provides an exemption for private placements, as noted above.

But there are many other differences as well. For example, while all Regulation A+ offerings are subject to dollar-amount limits, Section 506(c) of Regulation D allows companies to raise an unlimited amount of capital through the issuance of securities. Additionally, while companies conducting Regulation D offerings must file Form D with the SEC, they are not subject to ongoing reporting requirements.

What Are the Differences Between Regulation A+ and Regulation CF?

The most significant difference between Regulation A+ and Regulation CF is the dollar-amount limit for conducting unregistered offerings. While companies can raise up to $75 million through Tier 2 offerings under Regulation A+, Regulation CF allows companies to raise no more than $5 million in any 12-month period.

What Are the Differences Between Regulation A+ and Section 4(a)(2)?

Similar to Regulation D, Section 4(a)(2) provides a registration exemption for qualifying private placements. Section 4(a)(2) private placements can only be used to raise funds from “sophisticated investors;” and, while companies conducting Section 4(a)(2) private placements will typically use a PPM, an offering statement is not required. Additionally, unlike Regulation A+ offerings, companies can raise unlimited funds through Section 4(a)(2) private placements.

Speak with a Regulation A+ Offerings Lawyer at Oberheiden P.C.

If you have more questions about using a Regulation A+ offering to raise capital for your company, we invite you to get in touch. One of our federal securities lawyers will be more than happy to explain everything you need to know about federal securities laws. To schedule an appointment at Oberheiden P.C., call 888-680-1745 or tell us how we can help online today.