SEC Regulation A+ Offering Requirements

If you would like to raise money by offering securities for sale to specific investors, you need to register with the Securities and Exchange Commission, also known as SEC. One of the ways to make this process easier is through Regulation A, which was instituted under the Securities Act of 1933. Companies that are eligible for this exemption may have an advantage when compared to companies that need to register fully.

There are different tiers you need to know under Reg A, and you will still need to file an offering statement with the SEC. How do you know if you should issue a Reg A offering?

What Is Regulation A?

Even though there are stringent documentation requirements that accompany Title IV Regulation A offerings, there are some advantages as well. For example, you can streamline your financial statements without having to worry about audit obligations, which can save time and money. You are also not required to file any Exchange Act reports until you have more than 500 shareholders and $10 million in assets.

Furthermore, Reg A was updated in 2015 to allow companies to generate income under two separate tiers. This gives both companies and investors more options, making it easier for businesses to raise money. The two tiers are very different types of investments.

Tier 1

The first option is called Tier 1. Under this category, companies are able to offer a maximum of $20 million in securities per 12-month period. The company is required to file offering statements with the SEC, and those statements will have to be qualified by state regulators in any state that the company wants to sell its securities.

One of the major advantages of Tier 1 is that companies do not need to worry about ongoing reporting requirements; however, they do need to issue a report regarding the final status of each offering.

Tier 2

The other option is called Tier 2. This gives companies a bit more flexibility, as they can offer up to $75 million in a 12-month period. If the company decides to go with this option, it will be required to disclose audited financial statements and file regular reports, including reports related to its final status.

Under Tier 2, companies do not need to worry about registering or qualifying their offerings with specific state security regulators. They are still required to file their offering statement with the SEC, in addition to filing state notices, but the requirements are less cumbersome, particularly if you work with a Blue Sky filing provider, such as Colonial Stock Transfer.

A Table of the Requirements

Here’s a quick table that will go through the differences between Tier 1 and Tier 2 under Reg A:

Requirements Tier 1 Reg A Offering Tier 2 Reg A Offering
Max Size of the Offering $20 Million $75 Million
Maximum Duration of the Offering 12 Months 12 Months
Permitted Investor Types Accredited and Non-Accredited, including foreign investors Accredited and Non-Accredited, including foreign investors
Locations of Investors Handled on a state by state basis Across the entire country
Investor Limits No limit 10 percent of their annual income or their net worth, whichever is greater
Foreign Companies Open to foreign companies as long as they have a headquarters in the USA or Canada Open to foreign companies as long as they have a headquarters in the USA or Canada
Financial Audit Not required by the SEC, but could be required by individual states (not required to be PCAOB) Required, US GAAP level, must go back at least two years (not required to be PCAOB, unless going public on a stock exchange)
Post-Offering Reporting Requirements Less stringent, ongoing reporting requirements are more lenient More stringent with more documentation required
Broker-Dealer Required Not required Not required
Crowdfunding Marketing Allowed Yes, without broker-dealer, if registered properly Yes, without broker-dealer, if registered properly
State Filing Requirements Must file a full Tier 1 registration with each individual state in which you can issue securities. Must file state notices and pay fees in states that require such. If you don’t have a broker, Colonial can also assist with issuer dealer registrations.
Transfer Agent Required Required if you exceed exchange Act limitations. Yes

What Companies Have Raised Money Under Reg A?

There are several examples of companies that have raised significant amounts of money under Reg A. Some of the top examples include:

  • Big Brother Holding Company, LLC: This is a company that has launched a Craft brewery in a church that dates back to the Civil War. Under the agreement, the company agreed to pay its investors 3 percent of all monthly revenue until the investors had received 1.5 times their original investment. The company raised approximately $100,000 during its Reg A offering.
  • CloudSpray Corporation: CloudSpray Corporation is a data encryption software company. It issued its common stock at a $5 million dollar valuation. The company raised approximately $500,000 during its Reg A offering.
  • W. Blazer Holdings, LLC: This is a company that focuses on land engineering and environmental services. The company focuses on the real estate and energy sectors. The company issued LLC units at a $2.5 million valuation. W. Blazer Holdings raised approximately $100,000 during its Reg A offering.
  • Around Labs, Inc.: Around Labs is a social media platform that focuses on providing its users with access to real-time information related to local nightlife, parties, and gatherings. The company issued securities with an $8 million valuation, issuing a combination of both common and preferred stock. The company raised approximately $20,000 during its offering.
  • Treycent: Treycent is a mobile application that focuses on allowing its users to access private digital content using voice commands. The company issued common stock at a valuation of approximately $1.5 million, and it raised approximately $60,000.
  • Brewer’s Table, East Austin LLC: This is a craft brewery that uses locally sourced ingredients for all of its beer. The company issued secured promissory notes that would pay shareholders approximately 5.25 percent of all monthly gross revenue until the shareholders had received 1.5 times their original investment. The company raised approximately $250,000.
  • Pipeline Sports Network, Inc.: This is a B2B marketing place for buyers and sellers interested in virtual and augmented reality technology and solutions for competitive sports. The company issued non-voting, common stock at a valuation of approximately $360,000. The company raised approximately $300,000.

These are just a few examples of many companies that have taken advantage of Reg A offerings recently. How do you know if a round of Reg A funding is right for your business?

Is Reg A Right for Your Business?

There are several reasons why you might want to take advantage of a Reg A offering. Some of the top benefits include:

  • When compared to a traditional IPO, your company should incur much fewer expenses.
  • Reg A also allows you to test the waters. You can conduct a publicity campaign to see how much interest there is in your company before launching an offering.
  • With Reg A, you significantly expand the pool of potential investors because you can attract investments from both accredited and non-accredited investors.
  • You will also be subjected to fewer reporting requirements after you finish your Reg A fundraising when compared to more traditional routes.
  • You can go public onto the NYSE, NASDAQ, and OTC through a Reg A Tier 2 offering.
  • You can issue free-trading shares to unaccredited investors through a generally-solicited marketing campaign.

These are a few examples of reasons why you might want to consider going with Reg A fundraising. If you want to raise money using this route, you need to work with a professional team that can help you.

Preparing for your Reg A+ Offering

If you are interested in pursuing Regulation A offerings to raise capital and issue securities for your business, you need to work with a registered transfer agent that can help you. At Colonial Stock Transfer, we can help you with the following to prepare you for your Reg A+ offering:

  • Free Consultation to see if Reg A+ might a good fit for you and introductions to vendors and funding partners
  • Reg A+ Stock Transfer Agent services and investor tracking for private companies
  • Shareholder registry and issuances of securities
  • SEC and State filings for your Reg A filing requirements

Free Consultation

To get started with your Reg A+ offering, please contact us or complete the form below for a free consultation:

Share via
Copy link
Powered by Social Snap