Understanding Regulation A
Introduced as part of the Securities Act of 1933, Regulation A offers an exemption from the registration requirements typically necessitated for public offerings of securities. This regulatory pathway is designed to assist smaller companies in accessing capital more efficiently than traditional registered offerings.
Key Takeaways
Regulation A allows qualifying issuers to benefit from:
- Exemptions for public offerings of securities
- Less burdensome requirements compared to full registration
- Two distinct investment tiers under updated rules from 2015
Regulation A Updates of 2015
The two-tier system introduced in the 2015 updates to Regulation A, dubbed “Reg A+”, enables companies to raise funds under two separate frameworks:
Tier 1
- Allows offerings up to $20 million in a 12-month period
- Requires state-level qualification and SEC filing of offering statements
- Exempts from continuous reporting post-offering
Tier 2
- Permits offerings up to $75 million within a 12-month timeframe
- Mandates audited financial statements and ongoing SEC reports
- Offers a streamlined process without state regulator involvement but includes investment limits for non-accredited investors
Investors should consider the tier under which an offering is made, as it affects the regulatory obligations and the risk profile of the investment.
Practical Tips for Investors and Issuers
- Issuers: Carefully consider which tier fits your financial goals and compliance capacity. Tier 2 might be beneficial if you expect higher investment needs and can handle ongoing reporting.
- Investors: Review the offering statement diligently, understanding the specific risks and compliance measures associated with the tier of your potential investment.
Related Terms
- Accredited Investor: An individual or business entity that is allowed to deal in securities that may not be registered with financial authorities.
- Securities Act of 1933: U.S. legislation enacted to ensure transparency in financial statements to protect investors from fraud.
- Pubic Offering: The sale of equity shares or other financial instruments to the public in order to raise capital from public investors.
Suggested Books
- “Securities Regulation in a Nutshell” by Thomas Lee Hazen: An excellent resource for understanding the complexities of securities law including exemptions like Regulation A.
- “The Crowdfunding Bible” by Scott Steinberg: Learn about modern methods of raising funds including insights into Regulation A as it pertains to crowdfunding.
Understanding Regulation A is crucial for both investors seeking opportunities and companies aiming to expand their horizons through public offerings, all while navigating the seas of regulatory compliance with a seasoned compass. So dive in, the capital waters are just fine!
