A company wants to sell shares to ordinary retail customers it has no prior relationship with, and does not want to file a Securities Act registration statement. What does Regulation A make available to it?

A public offering open to the same retail investors, which still requires a registration statement but allows it to be filed on a shortened form the staff reviews on a faster timetable

A public offering open to investors who satisfy no income or net worth test, exempt from Section 5 registration but limited in the amount it may raise

An offering exempt from Section 5 registration which may be sold only to investors who satisfy a stated income or net worth test

An offering exempt from Section 5 registration, provided every purchaser first certifies in writing that the investment suits her circumstances

Regulation A rests on the authority that Section 3(b) of the Securities Act of 1933 gives the SEC. What must the Commission find before it may exempt a class of securities under Section 3(b)?

That the purchasers are sophisticated enough to evaluate the offering for themselves without the protection a statutory prospectus would give them

That the issuer's disclosure has been examined and cleared by every state securities regulator whose jurisdiction the proposed offering would reach

That enforcing registration is not necessary in the public interest or for investor protection, by reason of the small amount involved or the limited character of the offering

That the securities will trade in a market deep enough for an investor to sell out without relying on a registered dealer to make a price in them continuously

Two issuers are preparing offering documents, one under Tier 1 and one under Tier 2. Neither has ever had its financial statements audited for any purpose. How does the financial statement requirement differ between them?

The Tier 2 issuer must obtain statements audited by an independent accountant, while the Tier 1 issuer, having prepared none for other purposes, need not

Both must obtain audited statements, the difference being that only the Tier 2 issuer's auditor must be independent of the company whose figures it audits and reports on

Neither must obtain audited statements, because audited figures are required only once an issuer begins filing periodic reports after the offering

Both may use unaudited statements, provided each states plainly in its offering circular that no audit of the figures was performed

A Tier 1 issuer completes its offering and expects to file nothing further with the SEC. What does the Regulation A framework still require of it?

An annual report for each of the three fiscal years that follow the offering, at which point its federal reporting duty lapses

Nothing further at the federal level, although a closing report goes to each state regulator that qualified the offering for sale

A current report for every material event that occurs while the securities it sold remain outstanding, filed under the Exchange Act

An issuer comparing the cost of a Regulation A offering with a registered offering of the same size asks what it will pay the SEC in filing fees. What is the answer?

A fee calculated on the proceeds the issuer actually raises rather than on the amount offered, payable when the offering closes

A flat fee for each tier, lower than a registered offering's fee but payable whether or not the offering statement is ever qualified by the staff

The same percentage a registered offering pays, the saving under Regulation A lying wholly in the lighter disclosure the rules demand

Nothing, because no filing fee is required for a Regulation A offering, whereas a registered offering's fee is a percentage of the amount offered

An issuer's eligibility for Regulation A depends in part on where the company is established and where it is run from. What does the exemption require on that point?

The issuer must be organised in the United States or Canada and must also have its principal place of business in one of those countries

The issuer must be organised in the United States or Canada, although its principal place of business may be wherever its directors choose to put it

The issuer must have its principal place of business in the United States or Canada, whatever the jurisdiction under whose law it was organised

The issuer may be organised and run anywhere at all, provided the securities are sold only to investors resident in the United States or Canada

A US company that already files annual and quarterly reports with the SEC under the Exchange Act wants to raise thirty million dollars from retail investors under Regulation A. How does its Exchange Act reporting status bear on its eligibility?

It bars the company outright, Exchange Act reporting companies being an excluded category whatever the size of the raise, its tier or its investor base

It does not bar the company, provided it has filed every report it owed the Commission in the two years before filing its offering statement

It bars the company unless the staff first consents to its using the exemption alongside the Exchange Act reports it already files with the Commission

It confines the company to accredited investors, since a company with Exchange Act reports on file may not sell an exempt offering to retail buyers

A retail investor buys shares in a Tier 2 Regulation A offering; another investor buys shares in a Rule 506 private placement. Each wants to sell a month later. How does each holding stand?

Both may be resold at once, the SEC's qualification freeing the one and the accredited-investor condition freeing the other from any restriction

Both holdings are restricted, although the Tier 2 holder may point to the SEC's qualification of the offering in place of any waiting period

The Tier 2 shares are not restricted securities and may be resold at once, while the Rule 506 shares need registration or another exemption

The Tier 2 shares may be resold only through the firm that sold them, while the Rule 506 shares may be resold to any accredited investor

An issuer sold eighteen million dollars of shares under a Regulation A offering statement seven months ago. It now proposes a sixty million dollar Tier 2 offering, the Tier 2 ceiling being seventy-five million dollars in any twelve-month period. What is the most the new offering may raise?

Twenty million dollars, because an issuer that has already sold under an earlier offering statement within the year drops to the lower tier ceiling

Sixty million dollars, because the earlier offering closed before this one began and the twelve-month measurement starts afresh with each offering

Seventy-five million dollars, because the ceiling is applied to each offering statement separately as that statement is qualified

Fifty-seven million dollars, because the eighteen million already sold is added to the new offering and the sum may not exceed the ceiling

An issuer offers forty million dollars of notes convertible into its shares within one year of qualification of the offering statement. The maximum estimated conversion price of the underlying shares is twenty million dollars. Which securities count toward the amount measured against the tier ceiling?

The notes offered and the underlying shares together, the shares' maximum estimated conversion price being added and the shares themselves requiring qualification

The notes as offered, with the underlying shares entering the measurement if and when a holder exercises the right to convert them

The notes alone, a convertible being measured at the face amount of the debt whatever the terms on which it may be converted into shares

The underlying shares alone, since they are the securities that will be outstanding once the conversion right attached to the notes is used

An issuer will receive part cash and part property as consideration for the securities in its Regulation A offering. How is the amount measured against the tier ceiling arrived at?

It is based on the cash alone, the property dropping out because no offering price can sensibly be attached to consideration that is not cash

It is based on the price at which the securities are offered for cash, the property being valued by bona fide sales of it or, failing those, at fair value

It is based on the cash plus the amount at which the property stands in the issuer's own books, a valuation made for the offering being no measure of its worth

It is based on the cash plus the lower of the property's appraised value and its cost, so the issuer is never credited with an optimistic figure

An issuer has prepared an offering statement for a Regulation A offering but has not yet filed it with the Commission. What offers of the securities may it make at that stage?

Written offers of any kind, provided each is accompanied by a preliminary offering circular, whose delivery substitutes for the filing

Oral offers to any prospective investor, written sales material being the only communication the rules hold back until the filing is made with the Commission

Only a solicitation of interest, which the rules permit before any filing; no other offer of the securities may be made at that stage

No offer of any description, because every communication about the securities must await the filing of the offering statement with the Commission

An issuer's offering statement has been qualified, and it now wants to send prospective investors a written communication that amounts to an offer of the securities. What condition attaches to sending it?

The communication must repeat the risk factors from the offering circular in full, which removes the need to send the circular itself

The communication must carry a legend recording that the Commission has qualified the offering statement and has reviewed the communication

The communication may go only to investors who have confirmed in writing that they still wish to receive material about the offering

The most recent offering circular filed for the offering must accompany the communication or reach the investor before it does

An issuer with no existing Regulation A reporting obligation has its offering statement qualified on a Monday, and that same day sends the preliminary offering circular to the investors who had told it earlier that they were interested. Several of them want to buy on the Monday afternoon. May it sell to them?

No, because forty-eight hours must run from delivery of the preliminary offering circular before it may sell to those investors

Yes, because qualification of the offering statement lifts the conditions that applied to those investors while it was pending

Yes, provided each investor confirms that the preliminary offering circular arrived and that she has had the chance to read it

No, because it must deliver the final offering circular rather than the preliminary one before making any sale to those investors

An issuer sells Regulation A securities directly to investors through its own website, with no underwriter or dealer involved in any of the sales. Who owes each purchaser the final offering circular, and by when?

Nobody does, because the delivery duty is laid on underwriters and dealers and a direct sale by the issuer involves neither of them

The issuer does, standing in the position of an underwriter, and must deliver it within two business days after the sale is completed

The issuer does, but only where a purchaser asks for it, the absence of an intermediary removing the duty to deliver unprompted

The issuer does, and must deliver it before it accepts any purchase, since no intermediary is there to hand it over at the point of sale

A Regulation A security carries a listing on a registered national securities exchange, and the rule frees a dealer from delivering an offering circular more than twenty-five calendar days after a starting date the rule fixes. The issuer qualified its offering statement in March and first offered the securities to the public in May. From when do the dealer's twenty-five days run?

From the qualification date in March, extended day for day by the period the issuer waited before offering the securities publicly

From the qualification date in March, because the dealer's obligation attaches as soon as the offering statement has been qualified

From the first bona fide public offer in May, which is the later of the two dates, so the waiting time does not eat into the period

From the date on which the dealer itself first sold the security, each dealer's period running from its own first sale to a customer rather than from any date fixed for the offering as a whole

A dealer owes a purchaser the final offering circular and would rather not send the document itself. What may it send in place of the circular?

A notice naming the underwriter that led the offering, from whom the purchaser may obtain the circular by writing to the address given

A summary of the circular's principal terms, provided the purchaser is told that the complete document exists and may be had on request from the dealer at any time

A confirmation of the trade bearing a legend to the effect that the Commission has qualified the offering statement for the securities sold

A notice that the sale was made under a qualified offering statement, giving the locator for the circular and contact details for requesting a copy

An issuer canvasses public interest in a contemplated Regulation A offering months before any offering statement exists. How do the federal securities laws treat what it says in that canvass?

As an offer of a security for sale for antifraud purposes, so the issuer answers for what it says although no security may yet be sold

As ordinary commercial speech about the company's prospects, the antifraud provisions of the federal securities laws attaching only once the offering statement has been qualified by the Commission

As statements the issuer answers for only if it repeats them in the offering circular, the circular superseding what was said while the offering was merely contemplated

As a general solicitation of the public, which costs the issuer the ability to claim any registration exemption for the offering later

A Regulation A solicitation of interest must carry a set of specific statements. One of them concerns the standing of an investor's response to it. Which statement do the conditions require?

That an indication of interest may be withdrawn in writing alone, and only before the offering statement has been publicly filed

That any offer to buy may be withdrawn or revoked, without obligation of any kind, at any time before notice of its acceptance after qualification

That an indication of interest, once given, fixes the number of securities the investor will be allocated once the offering is qualified

That an investor who withdraws an indication of interest may not take part in the offering when it is qualified some months later, the withdrawal being final

Once an issuer's offering statement has been publicly filed, a solicitation of interest must do something it need not do before that filing. What is it?

Name the underwriter or placement agent through which indications of interest are to be routed now that the offering is public

Carry the statement that no money is being solicited, which becomes mandatory only once the offering statement is on public file

Name a source for the most recent preliminary offering circular with contact details, give the locator for it, or include a complete copy

Be approved by a principal of the issuer in its post-filing form before any further copies of it are distributed to the public

A director of an issuer was convicted eight years ago of a felony in connection with the sale of a security. The issuer now files a Regulation A offering statement. What is the effect of that conviction, and would it differ had the conviction been the issuer's own?

It leaves the offering unaffected, a conviction older than five years being curable by disclosing it in the offering circular

It disqualifies the offering, and an identical conviction of the issuer itself would disqualify it too, one period applying to every person

It leaves the offering unaffected, the five-year period applying to every covered person whatever that person's connection with the issuer

It disqualifies the offering, a director's conviction carrying a ten-year look-back, while the issuer's own would fall outside the five-year period

An issuer engages a marketing firm that will be paid for soliciting purchasers in its Regulation A offering. An executive officer of that firm who will work on the offering has a disqualifying conviction. The firm is not an affiliate of the issuer and owns none of its shares. What follows?

The offering is disqualified, because the screen reaches the officers participating in the offering of a person paid to solicit purchasers

Nothing follows, because the screen reaches persons within the issuer and its affiliates and a paid solicitor's own staff sit outside it

Nothing follows unless the firm itself was convicted, an officer's history going to that firm's own registration rather than to the offering

The offering is disqualified only where the issuer was told of the conviction, the screen reaching outsiders on a knowledge basis alone

A beneficial owner of twenty-five percent of an issuer's outstanding voting equity, calculated on the basis of voting power, becomes subject to a disqualifying event after the offering statement has been filed but before any sale. What must the issuer determine about that holder?

Whether a disqualifying event has occurred at any time up to the sale, since the enquiry never closes at the filing of the offering statement

Only whether a disqualifying event had occurred as of the filing of the offering statement, so the later event does not disqualify the offering

Whether the holder's voting power still exceeds twenty percent at the time of the sale, the enquiry turning on the size of the holding rather than on its history

Whether the event would have disqualified the offering had it happened before filing, and if so to describe it in the offering circular

A Tier 2 issuer whose securities are held of record by two hundred and twenty persons wants to bring its Regulation A periodic reporting to an end. What ends the duty, and when does it end?

A written application to the Commission ends it, the duty running on until the staff grants that application and tells the issuer so

Its exit report ends it, but only once the holder count is below one thousand two hundred persons, the threshold the rule sets for every issuer

Its exit report ends it immediately on filing, the class being held by fewer than three hundred persons and all reports already due having been filed

The close of the fiscal year in which the holder count fell below the threshold ends it, with no filing of any kind needed to bring it about

A Tier 2 issuer qualified an offering statement in the current fiscal year, raised what it needed and closed the offering. It now wants to stop filing periodic reports straight away. What does the rule do with that plan?

Suspension is open to it for the class, although it must file one further annual report in each of the two fiscal years that follow

Suspension is open to it as soon as the offering closes, the duty attaching to an offering still being made rather than to one already qualified and closed to new investors

Suspension is open to it once it certifies that the offering raised less than the ceiling for the twelve-month period allowed to it

After completing its offering, a Tier 2 issuer became subject to the reporting requirements of Section 13 of the Exchange Act and has filed everything those requirements called for in the preceding twelve months. What becomes of its Regulation A reporting duty?

It is deemed to have been met at each due date on which those Exchange Act reports are current, so nothing separate is filed under the rule

It runs on in parallel with the Exchange Act reports, the two sets of filings serving different purposes and different bodies of readers, so neither can stand in for the other

It is held in abeyance while the Exchange Act reporting lasts and falls away altogether once two complete fiscal years have gone by

It shrinks to a single annual filing under the Regulation A rule, summarising for investors the Exchange Act reports already filed that year

An issuer whose shares already trade in an existing market wants to sell newly issued shares of that same class into that market at prevailing prices, relying on a qualified Regulation A offering statement. How does Regulation A treat that plan?

It is permitted for a Tier 2 issuer, the bar falling on Tier 1 offerings, where no federal review of the offering materials takes place before sales begin

It is barred: selling into the existing market at prevailing prices is not permitted, and the issuer must offer that class at a fixed price

It is permitted provided each sale into the market is reported, so that buyers can see that the shares came from the issuer itself

It is permitted provided no sale is made below the minimum price stated in the offering circular, which supplies the fixed element

A Tier 2 issuer selling on a continuous basis under a qualified offering statement falls behind on its annual and semiannual Regulation A filings. What happens to its ability to go on selling?

It continues so long as each purchaser is told that the filings are overdue, the disclosure standing in for the missing reports

It continues, the delinquency going to the issuer's reporting record rather than to the securities it is entitled to sell meanwhile under a statement already qualified

It stops until the filings are brought up to date, currency at the time of each sale being a condition of selling on a continuous basis

It stops for good as to that offering statement, the exemption falling away permanently once a required filing has been missed

A continuous offering may run for no longer than three years from the initial qualification date of the offering statement under which the securities are sold. An issuer files a new offering statement before that three-year period runs out. For how long may it go on selling the securities covered by the old statement?

For three years more, measured from the filing of the new offering statement, the old statement's period restarting on that date

Until the new offering statement is qualified, however long the Commission's review of that new statement happens to take, the prior statement's period being suspended meanwhile

Until the third anniversary of the old statement's initial qualification date, the new filing not extending that period at all

Until the earlier of the new statement's qualification date or one hundred and eighty calendar days after the third anniversary of the old one

Regulation A | Financial Regulation Courses

SERIES 7 PREP | FINANCIAL REGULATION COURSES

Regulation A is an exemption from the full registration requirements of Section 5 of the Securities Act of 1933 that allows companies to offer and sell securities to the public — including to non-accredited retail investors — through a streamlined disclosure process substantially less burdensome than a traditional registered initial public offering, up to specified annual dollar limits. Authorised under Section 3(b) of the Securities Act and substantially expanded by Title IV of the Jumpstart Our Business Startups Act of 2012, Regulation A is commonly referred to as a mini-IPO because it permits genuinely public offerings — broadly advertised, open to all investors — without the full registration apparatus of a conventional IPO. The SEC's final rules implementing the JOBS Act expansion — adopted on March 25, 2015 and effective June 19, 2015 — are commonly called Regulation A-plus, and they established the two-tier framework that governs the programme today.

The Statutory Foundation

Regulation A derives its authority from Section 3(b) of the Securities Act of 1933, which grants the SEC authority to exempt from the full registration requirements of Section 5 any class of securities if it finds that the enforcement of the registration requirements with respect to such securities is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering. This provision recognises that the compliance burden of a full Section 5 registration — filing a registration statement, waiting through an SEC review period, and delivering a Section 10(a) statutory prospectus — is disproportionate for smaller capital raises where the investor population, offering size, and associated risk do not justify the full cost and complexity.

The original Regulation A exemption, as it existed before the JOBS Act, was capped at five million dollars annually — an amount widely regarded as insufficient to justify the cost of preparing and qualifying the required offering documentation — and required state-by-state registration that further increased costs and complexity. Usage was minimal. Title IV of the JOBS Act directed the SEC to expand the exemption substantially, and the resulting Regulation A-plus framework created two tiers with meaningfully higher offering limits and a federal preemption of state registration requirements for the larger tier.

The Two-Tier Structure

Regulation A operates through two distinct tiers — Tier 1 and Tier 2 — each with different offering limits, disclosure requirements, investor eligibility rules, ongoing reporting obligations, and state securities law treatment.

Tier 1 — Up to Twenty Million Dollars

Tier 1 permits offerings of up to twenty million dollars in any twelve-month period, including no more than six million dollars on behalf of selling securityholders that are affiliates of the issuer. Tier 1 imposes no limitation on which investors may participate — retail investors of any income or net worth level may invest without restriction on the amount they invest in a single Tier 1 offering.

Tier 1 issuers are not required to include audited financial statements in their offering documents unless they have already prepared them for other purposes. This lighter financial statement requirement reduces costs but also reduces the information available to investors for evaluating the offering.

Tier 1 offerings are subject to state securities law requirements — so-called blue sky laws — in each state where the securities are offered or sold. This means Tier 1 issuers must comply with the registration or qualification requirements of every state securities regulator whose jurisdiction is implicated by the offering, substantially increasing the regulatory burden and limiting the practical attractiveness of Tier 1 for multi-state offerings.

Tier 1 issuers have no ongoing periodic reporting obligations to the SEC after completing the offering, although they must file a final report on Form 1-Z within thirty calendar days after the offering is completed or terminated.

Tier 2 — Up to Seventy-Five Million Dollars

Tier 2 permits offerings of up to seventy-five million dollars in any twelve-month period — raised from fifty million dollars when the SEC amended the rules in March 2021 — including no more than twenty-two point five million dollars on behalf of selling securityholders that are affiliates of the issuer. Sales by all selling securityholders in a Tier 2 offering are limited to no more than thirty percent of the total offering.

Tier 2 imposes an investment limitation on non-accredited investors — individual investors who are not accredited under Rule 501(a) of Regulation D may not invest more than ten percent of the greater of their annual income or net worth in any single Tier 2 offering, calculated excluding the value of the investor's primary residence and any loans secured by it. This investment cap does not apply to accredited investors or to securities that will be listed on a national securities exchange upon qualification — exchange-listed Tier 2 securities are freely purchasable by all investors without limitation.

Tier 2 issuers must include audited financial statements prepared by an independent accountant in their offering documents. The Tier 2 offering circular is reviewed and qualified by the SEC Division of Corporation Finance but — unlike Tier 1 — is not subject to review or qualification by state securities regulators. This federal preemption of state blue sky review for Tier 2 offerings is the most significant practical advantage of Tier 2 over Tier 1 for companies seeking to offer securities in multiple states, as it eliminates the state-by-state registration burden.

Tier 2 issuers are subject to ongoing periodic reporting obligations after completing or terminating the offering. They must file annual reports on Form 1-K within one hundred and twenty days of fiscal year-end, semiannual reports on Form 1-SA within ninety days of the end of the first six months of the fiscal year, and current reports on Form 1-U within four business days of specified material events. These reporting requirements are less extensive than the full SEC reporting obligations of Exchange Act reporting companies — Tier 2 issuers file with the SEC but are not SEC reporting companies under the Exchange Act unless they separately trigger Exchange Act registration. A Tier 2 issuer may suspend its ongoing Regulation A reporting obligations after completing reporting for the fiscal year in which the offering concluded if it meets specified conditions.

The Form 1-A Offering Statement

Both Tier 1 and Tier 2 companies must file an offering statement on Form 1-A with the SEC before conducting a Regulation A offering. The Form 1-A contains the offering circular — the primary disclosure document for investors, functioning as the Regulation A equivalent of a prospectus in a registered offering — plus supplementary information about the offering structure.

The offering circular must include a description of the company's business, risk factors, use of proceeds, financial statements meeting the applicable tier requirements, management biographical information and compensation, related party transactions, and the terms of the securities being offered. The SEC reviews the Form 1-A and may issue comments requiring revisions before qualifying the offering — meaning formally declaring that the offering may proceed. Companies may not accept payment for the sale of securities until their offering statement has been qualified by the SEC.

No SEC filing fee is required for Regulation A offerings — a meaningful cost saving compared to registered offerings whose filing fees are calculated as a percentage of the offering's aggregate offering price.

Testing the Waters

A distinctive and practically important feature of Regulation A is the testing the waters provision — companies may solicit non-binding indications of interest from the general public before or after filing the offering statement, subject to certain conditions. This pre-qualification solicitation allows issuers to gauge genuine investor demand before committing to the full cost of preparing and qualifying the Form 1-A. Testing the waters communications must be filed with the SEC and must comply with specified antifraud requirements — they may not be materially misleading — but they may be broadly disseminated through social media, email, and other communications channels.

Eligible Issuers and Excluded Companies

Regulation A is available only to companies organised in and with their principal place of business in the United States or Canada. Certain categories of issuers are explicitly excluded from Regulation A eligibility — investment companies registered under the Investment Company Act of 1940, blank check companies, companies that have not filed with the Commission all the reports they were required to file under Regulation A or under Section 13 or 15(d) of the Exchange Act during the two years before filing the offering statement, and companies that are disqualified due to bad actor provisions under Rule 262, which bars issuers with certain prior regulatory violations or criminal convictions from using the exemption. Exchange Act reporting companies were themselves excluded until January 31, 2019, when the Commission, as directed by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, deleted that exclusion; such a company may now use Regulation A provided it has filed the reports it owed over that two-year period.

Regulation A Versus Regulation D — The Key Comparison

Regulation A and Regulation D are the two primary federal exemptions from full Securities Act registration used by smaller companies, but they serve fundamentally different capital markets purposes and attract different investor populations.

Regulation D under Rules 506(b) and 506(c) permits unlimited capital raises from accredited investors — typically institutions and high-net-worth individuals meeting specified income or net worth thresholds — without SEC qualification review of the offering materials, without ongoing reporting requirements, and without any investment limitation on accredited investors. Regulation D offerings are private — securities sold under Rule 506 are restricted and cannot be freely resold without registration or an applicable exemption.

Regulation A permits genuinely public offerings — sold to any investor, broadly advertised, with freely tradeable securities — but imposes meaningful caps on the total offering size and requires SEC qualification of the offering materials. Regulation A securities sold in a Tier 2 offering are not restricted securities and may be freely resold by purchasers immediately after the offering — a critical distinction from Regulation D securities which require a holding period before resale.

The practical implication is that Regulation A is most useful for companies that want broad retail investor participation, desire freely tradeable securities from the outset, and are willing to accept the SEC qualification process and, for Tier 2, ongoing reporting obligations in exchange for access to the general investing public. Regulation D is more appropriate for private placements to sophisticated institutional investors where the offering speed, privacy, and absence of investment limitations outweigh the advantages of retail accessibility.

How the Twelve-Month Offering Limit Is Calculated

The tier ceilings are not tested against the current offering in isolation. The limit measures the aggregate offering price of the securities being offered — the sum of all cash and other consideration to be received for them — together with the aggregate sales, meaning the gross proceeds for all securities sold pursuant to other offering statements within the twelve months before the start of the current offering and during it. An issuer that sold eighteen million dollars of shares under a Regulation A offering statement seven months ago and now proposes a sixty million dollar Tier 2 offering has an aggregate of seventy-eight million dollars — eighteen plus sixty — which exceeds the seventy-five million dollar Tier 2 limit, so the proposed offering must be cut to no more than fifty-seven million dollars, being seventy-five million less the eighteen million already sold. The same arithmetic performed by a Tier 1 issuer is measured against twenty million dollars.

Convertible securities and warrants are counted in a way that catches issuers out. Where convertible securities or warrants are being offered and those securities are convertible, exercisable or exchangeable within one year of the offering statement's qualification or at the discretion of the issuer, the underlying securities must themselves also be qualified, and the aggregate offering price must include the actual or maximum estimated conversion, exercise or exchange price of those underlying securities. An issuer offering forty million dollars of notes convertible within one year, where the maximum estimated conversion price of the underlying shares is twenty million dollars, therefore counts sixty million dollars against the ceiling rather than forty.

Consideration that is not cash is valued by a prescribed method. Where a mixture of cash and non-cash consideration is to be received, the aggregate offering price must be based on the price at which the securities are offered for cash. Consideration other than cash is valued by reference to bona fide sales of that consideration made within a reasonable time or, in the absence of such sales, at fair value determined by an accepted standard, and any such valuation must be reasonable at the time it is made. Cash received in a foreign currency is translated into United States currency at a currency exchange rate in effect on, or at a reasonable time before, the date of the sale of the securities.

What May Be Offered Before Qualification

Regulation A regulates offers in distinct phases either side of the filing. Before an offering statement has been filed with the Commission, no offer of the securities may be made at all, with the single exception of a solicitation of interest permitted by Rule 255. Once the offering statement has been filed but before it has been qualified, oral offers may be made, written offers may be made under Rule 254, and solicitations of interest and other communications may continue under Rule 255. The distinction matters because the permission to communicate before filing is specific to the solicitation of interest provision and does not extend to ordinary written sales material.

After qualification the restriction on written material takes a different form. Offers may be made once the offering statement has been qualified, but any written offer must be accompanied by or preceded by the most recent offering circular filed with the Commission for that offering. The practical consequence is that a written communication amounting to an offer cannot travel on its own once the offering is live: the most recent offering circular must accompany it or arrive first.

A sale carries a waiting condition that catches issuers new to the process. An issuer that is not currently required to file reports under Rule 257(b) may not sell securities to any person who, before qualification of the offering statement, had indicated an interest in purchasing in the offering — including a person who responded to the issuer's solicitation of interest materials — unless a Preliminary Offering Circular was delivered to that person at least forty-eight hours before the sale. An issuer that solicits interest widely and delivers the Preliminary Offering Circular to those respondents only on the qualification date cannot sell to them that same day, because the forty-eight hours must have run before the sale itself and not merely before the offering statement was qualified.

Delivery of the Final Offering Circular

Delivery of the final document is an obligation that survives the sale rather than preceding it. Where a transaction represents a sale by the issuer or an underwriter, or a sale by a dealer within ninety calendar days after qualification of the offering statement, each underwriter or dealer selling in that transaction must deliver to each purchaser from it, not later than two business days following the completion of the sale, a copy of the Final Offering Circular. Where the sale was by the issuer and was not effected by or through an underwriter or dealer, the issuer is responsible for delivering the Final Offering Circular as if the issuer were an underwriter, so an issuer selling directly to investors through its own website does not escape the obligation by pointing to the absence of an intermediary.

A dealer's obligation is shortened where the security carries an exchange listing. If the security is listed on a registered national securities exchange, no offering circular need be delivered by a dealer more than twenty-five calendar days after the later of the qualification date of the offering statement or the first date on which the security was bona fide offered to the public. The period is measured from whichever of those two dates falls later, so an issuer that qualifies an offering statement and then waits before beginning to offer the securities does not consume the twenty-five days while it waits. For continuous or delayed offerings the ninety calendar day period applicable to dealers commences on the day of the first bona fide offering of securities under the offering statement.

The requirement may be satisfied without sending the document itself. An underwriter or dealer may instead deliver a notice to the effect that the sale was made pursuant to a qualified offering statement, which includes the uniform resource locator at which the Final Offering Circular, or the offering statement of which it forms part, may be obtained on the Commission's Electronic Data Gathering, Analysis and Retrieval System, together with contact information sufficient to notify a purchaser where a request for a Final Offering Circular can be sent and received in response. In the case of an electronic-only offering that locator must be an active link rather than plain text.

The Conditions Attached to a Solicitation of Interest

A solicitation of interest is not outside the securities laws merely because it precedes the offering statement. Communications made to determine whether there is any interest in a contemplated securities offering are deemed to be an offer of a security for sale for the purposes of the antifraud provisions of the federal securities laws, so the issuer carries antifraud exposure for what it says at the testing stage even though no security may yet be sold. An issuer, or any person authorised to act on its behalf, may make those communications orally or in writing at any time before qualification of the offering statement, including before the non-public submission or the public filing of that statement. No solicitation or acceptance of money or other consideration, and no commitment of any kind binding or otherwise, is permitted from any person until the offering statement is qualified.

The communications must carry a specific set of statements. They must state that no money or other consideration is being solicited and that if money is sent in response it will not be accepted; that no offer to buy the securities can be accepted and no part of the purchase price can be received until the offering statement is qualified; that any such offer may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date; and that a person's indication of interest involves no obligation or commitment of any kind.

Once the offering statement has been publicly filed the communication must do one of three further things. It must state from whom a copy of the most recent version of the Preliminary Offering Circular may be obtained, including that person's telephone number and address; or provide the locator at which the Preliminary Offering Circular, or the offering statement in which it was filed, may be obtained; or include a complete copy of the Preliminary Offering Circular. An issuer that continues to use solicitation materials after public filing without adding any of these three has a defective communication, even though the same materials were compliant when they were first distributed before filing.

Bad Actor Disqualification and Its Look-Back Periods

The disqualification provisions operate through look-back periods that differ according to whose conduct is in question. A conviction for a felony or misdemeanour in connection with the purchase or sale of a security, involving the making of a false filing with the Commission, or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities disqualifies an offering where the conviction came within ten years before the filing of the offering statement or the sale — except that the period is five years where the convicted person is the issuer itself, a predecessor of the issuer or an affiliated issuer. Because the two periods differ, a conviction eight years old can disqualify an offering through a director while the same conviction, if it were the issuer's own, would fall outside the five-year period and would not.

The screen reaches well beyond the issuer. The persons whose history can disqualify an offering include any predecessor of the issuer; any affiliated issuer; any director, executive officer, other officer participating in the offering, general partner or managing member of the issuer; any beneficial owner of twenty percent or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power; any promoter connected with the issuer in any capacity at the time of filing, of any offer after qualification, or of the sale; any person who has been or will be paid, directly or indirectly, remuneration for solicitation of purchasers in connection with the sale; and the general partner, managing member, directors, executive officers and other officers participating in the offering of any such paid solicitor.

The moment at which the enquiry is made is not the same for every covered person. With respect to any beneficial owner of twenty percent or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power, the issuer is required to determine whether a disqualifying event has occurred only as of the time of filing of the offering statement and not from the time of the sale. For the other covered persons the relevant moment is the filing of the offering statement or the sale, which means an event affecting a director after filing but before a sale remains capable of disqualifying the offering, while the same event affecting a holder of twenty percent of the voting power does not.

Suspending and Ending Tier 2 Reporting

The ongoing reporting duty is not perpetual. The duty to file Tier 2 periodic and current reports with respect to a class of securities held of record by fewer than three hundred persons — or fewer than one thousand two hundred persons where the issuer is a bank or a bank holding company — is suspended immediately upon filing with the Commission an exit report on Form 1-Z, provided that the issuer has filed all reports due under the rule before the date of that Form 1-Z filing, for the shorter of the period since the issuer became subject to the reporting obligation or its most recent three fiscal years and the portion of the current year preceding the filing.

Three circumstances put suspension out of reach for a class of securities. Suspension is unavailable if a Tier 2 offering statement was qualified during that fiscal year; if the issuer has not filed an annual report under the rule or under the Exchange Act for the fiscal year in which a Tier 2 offering statement was qualified; or if offers or sales of securities of that class are being made pursuant to a Tier 2 Regulation A offering. An issuer that qualifies a Tier 2 offering statement in a fiscal year therefore carries the reporting duty at least through the annual report for that year, whatever its holder count may be.

The duty can also be met rather than suspended. Where the issuer is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and, as of each Form 1-K and Form 1-SA due date, has filed all reports required by those sections during the preceding twelve months, or such shorter period as it was required to file them, the duty to file reports under the Regulation A rule is deemed to have been met. If that status ends because the issuer terminates or suspends its Exchange Act reporting duty, the Regulation A obligation automatically terminates where the issuer is eligible to suspend on the holder-count ground, and otherwise recommences with the report covering the most recent financial period after that included in any effective registration statement or filed Exchange Act report.

Continuous Offerings and the Bar on At-the-Market Pricing

One pricing method is unavailable under Regulation A whatever the tier. An at-the-market offering — meaning, for this purpose, an offering of equity securities into an existing trading market for outstanding shares of the same class at other than a fixed price — is not permitted under Regulation A, whether made by or on behalf of the issuer or otherwise. An issuer whose shares already trade cannot therefore use a qualified Regulation A offering statement to feed new shares of the same class into that market at prevailing prices; to use the exemption for that class it must offer at a fixed price.

Continuous offerings are permitted, within limits that bite over time. Securities whose offering commences within two calendar days after the qualification date, is made on a continuous basis and may continue beyond thirty calendar days from initial qualification may be offered and sold only if not more than three years have elapsed since the initial qualification date of the offering statement under which they are being offered and sold. Those securities may also be sold only if the issuer is current in its annual and semiannual filings under Rule 257(b) at the time of the sale, so a Tier 2 issuer that falls behind on Form 1-K or Form 1-SA loses the ability to sell under its continuous offering until it brings those filings up to date.

The three-year limit need not force a gap in the offering. Before the end of that three-year period an issuer may file a new offering statement covering the securities, and where it does, securities covered by the prior offering statement may continue to be offered and sold until the earlier of the qualification date of the new offering statement or one hundred and eighty calendar days after the third anniversary of the initial qualification date of the prior offering statement. The offering of securities on the earlier offering statement is deemed terminated as of the date of qualification of the new offering statement, and unsold securities covered by the earlier statement may be carried into the new one by identifying their amount on the cover page of the new offering circular or its latest amendment.

Examination Relevance and Key Takeaways

Regulation A is tested on the Series 7 examination in the context of Securities Act exemptions, the capital-raising alternatives available to smaller companies, and the distinction between public and private offerings.

The key points to retain are these.

Regulation A is an exemption from full Securities Act Section 5 registration authorised under Section 3(b) of the Securities Act, expanded by Title IV of the JOBS Act of 2012 into the two-tier Regulation A-plus framework with SEC final rules adopted March 25, 2015. Tier 1 permits offerings up to twenty million dollars in any twelve-month period — no audited financials required, no ongoing reporting after the offering, subject to state blue sky law review, no investor investment limitations. Tier 2 permits offerings up to seventy-five million dollars in any twelve-month period — audited financials required, ongoing reporting on Forms 1-K, 1-SA, and 1-U required, state blue sky preemption for the offering, non-accredited investors limited to ten percent of the greater of annual income or net worth per offering.

Both tiers require filing an offering statement on Form 1-A with the SEC — no offering proceeds may be accepted until the SEC qualifies the offering. Testing the waters — soliciting non-binding indications of interest before or after filing — is permitted under both tiers subject to antifraud requirements. Regulation A securities sold in a Tier 2 offering are not restricted securities and may be freely resold immediately — distinguishing them from Regulation D securities which carry holding period restrictions before resale. Regulation A is available only to US and Canadian issuers and excludes registered investment companies, blank check companies, issuers that have not filed the reports they owed the Commission in the two years before filing, and bad actor disqualified issuers under Rule 262; since January 31, 2019 Exchange Act reporting companies may use it. No filing fee is required for Regulation A offerings.