What Is Regulation A+?

Regulation A+ is a securities exemption that allows companies to raise capital from both accredited and non-accredited investors without undergoing the full initial public offering (IPO) process. Introduced as part of the Jumpstart Our Business Startups (JOBS) Act in 2012 and implemented by the Securities and Exchange Commission (SEC) in 2015, Regulation A+ expanded upon the existing Regulation A exemption, making it a more viable option for small and mid-sized businesses to access public investment.

Understanding Regulation A+

Regulation A+ is divided into two tiers, each with its own requirements and limitations:

• Tier 1 allows issuers to raise up to $20 million in a 12-month period. Companies using this tier must have their offering qualified by the SEC and comply with state-level blue sky laws, which require registration in each state where securities are sold. While financial reporting requirements are less stringent than those of a full IPO, issuers must still provide an offering circular and basic financial disclosures.
• Tier 2 allows issuers to raise up to $75 million within a 12-month period. Companies choosing this tier must submit audited financial statements and provide ongoing semiannual and annual reports to the SEC. However, Tier 2 offerings are exempt from state blue sky laws, reducing the regulatory burden and making it easier to raise capital from investors across multiple states.

One of the key benefits of Regulation A+ is that it permits general solicitation and advertising, meaning companies can market their offerings to the public through various channels, including social media, online platforms, and traditional media. This feature makes it particularly attractive for businesses looking to raise funds through crowdfunding or direct public offerings.

Eligibility and Requirements

Regulation A+ is available to U.S. and Canadian companies that are not already public reporting entities under the Securities Exchange Act of 1934. Certain businesses, such as investment companies, blank check companies, and those with pending SEC enforcement actions, are ineligible to use this exemption.

To qualify for a Regulation A+ offering, issuers must file Form 1-A with the SEC. This document includes an offering statement, financial disclosures, and details about the company’s business operations, management team, and risk factors. Once the SEC qualifies the offering, the company can begin selling securities to investors.

For Tier 2 offerings, additional compliance requirements apply. Companies must adhere to ongoing reporting obligations, including annual audited financial statements, semiannual updates, and reports on significant events. Additionally, Tier 2 issuers must implement investment limits for non-accredited investors, restricting their investment to no more than 10% of their annual income or net worth, whichever is greater.

Advantages and Challenges

Regulation A+ presents a middle ground between private placements and full IPOs, offering businesses a way to raise public capital without the extensive costs and regulatory burdens associated with traditional public offerings. The ability to attract both accredited and non-accredited investors significantly expands the potential investor base, making it a powerful tool for startups and growth-stage companies.

Additionally, securities sold under Regulation A+ can be freely traded, providing liquidity to investors and enabling issuers to establish a market for their shares without listing on a major exchange. Some companies use Regulation A+ as a stepping stone to a full IPO, leveraging the exposure and capital raised to transition to a public listing.

However, Regulation A+ is not without its challenges. The initial filing process with the SEC requires legal and accounting expenses, and compliance with ongoing reporting requirements can add operational costs. For Tier 1 issuers, navigating state blue sky laws can be complex and time-consuming, potentially limiting the attractiveness of this option. Additionally, while Regulation A+ securities are freely tradeable, establishing liquidity in secondary markets can be difficult unless the company lists on an exchange or alternative trading platform.

The Bottom Line

Regulation A+ provides an alternative capital-raising method for companies looking to access public investors without the costs and regulatory burdens of a traditional IPO. With its two-tiered structure, it offers flexibility depending on the amount of capital sought and the level of regulatory compliance an issuer is willing to undertake. While it can be an effective way to raise funds, companies considering Regulation A+ must carefully weigh the benefits against the associated costs and compliance obligations. For businesses with a strong investor outreach strategy and a clear growth plan, Regulation A+ can serve as a valuable mechanism to fuel expansion and market presence.