Regulation A

Regulation A is an exemption from full Securities Act of 1933 registration that allows companies to offer securities to the public with reduced disclosure and review. Originally capped at $1 million, the JOBS Act expanded it to $75 million (now called “Regulation A+” or “Reg A Plus”). Companies file an offering statement with the SEC and state regulators but receive faster review than a full IPO and with lighter disclosure burdens.

Origins and the JOBS Act expansion

Regulation A was created in 1992 to allow small companies to raise up to $1 million without full registration. It was lightly used — the burden of state-by-state compliance was high. The JOBS Act of 2012 expanded Regulation A to $50 million (later to $75 million), simplified state review, and created “Regulation A+” as the tier for larger offerings.

Tier 1 (under $20 million) remains relatively simple; Tier 2 (up to $75 million) is more complex but still simpler than a full IPO.

Form 1-A: the offering statement

Instead of a prospectus (Form S-1), a Regulation A company files a Form 1-A offering statement. It covers similar ground — company business, risk factors, use of proceeds, financial statements (though not audited at Tier 1), management, and compensation. However, it is shorter and allows for more narrative explanation rather than the rigid 10-K format.

The SEC reviews the Form 1-A, issues comment letters, and eventually issues a “qualification.” Once qualified, the company can begin selling securities. The review typically takes 2–3 months for Tier 1, 4–6 months for Tier 2. This is faster than a full IPO (typically 6–12 months).

State compliance: blue-sky laws

One burden Reg A candidates face is state review. Each state has “blue-sky” laws that require securities offerings to be approved by the state securities administrator. Before the JOBS Act, Reg A companies had to comply with every state’s rules — some states were lenient, others were strict.

The JOBS Act created a federal review process: if the SEC qualifies a Tier 2 offering, a company can offer in any state without additional state-by-state approval (though it must still file). Tier 1 offerings still require state approval in each state. This has made Tier 2 much more attractive.

Who uses Regulation A?

Companies using Reg A are typically those too large for crowdfunding (which maxes out at $5 million) but too small or risky for a traditional IPO. This includes:

• Renewable energy companies
• Real estate development firms
• Tech startups
• Manufacturing companies
• Cannabis businesses (complex in IPO process due to federal prohibition)

Some Reg A companies graduate to IPOs; others remain in Reg A indefinitely (ongoing reporting is not onerous).

The IPO alternative

Regulation A is sometimes called a “mini-IPO,” but it is quite different from a traditional IPO. A Reg A company trades over-the-counter (OTC) — typically on the OTC Markets exchange (not a major exchange like Nasdaq). Shares are less liquid and trading less frequent. A traditional IPO lists on Nasdaq or NYSE and gets more visibility.

However, Reg A companies avoid the expense of an IPO. An IPO can cost $5–10 million in legal and banking fees; a Reg A offering costs $300,000–$500,000. For a $30 million raise, an IPO might not be worth it.

Accredited investor requirements

Regulation A allows both accredited and non-accredited investors to participate. This democratizes capital access but also increases risk for retail investors. The SEC requires that in Tier 2 offerings, non-accredited investors be limited to 10% of the offering. This protects retail investors by concentrating capital from wealthy, sophisticated backers.

See also