Under Securities Act of 1933 any offer to sell securities must be registered with Securities and Exchange Commission (SEC) or meet certain requirements to be exempt from registration. Regulation A+ under Title IV, Section 401 of Jumpstart Our Business Startups Act (JOBS Act) contains rules providing exemptions from the registration requirements. Reg A exemption existed prior to JOBS Act, it principally focused on small companies and had offering limit of $5 million which led to it not being used as much. Additionally issuer registered the offerings in any state in which they planned to sell it.
JOBS Act expanded offering limit on $20 million for Tier 1 and $50 million for Tier II offering. With Regulation A companies can raise capital from the public and avoid legal requirements and high costs of traditional IPO. This means it included startup and emerging companies that could bear costs of initial public offering. Tier 2 Offering also called Mini IPO removes individual state registration requirements which partly exempts it from blue sky laws. It still remain the subject of state anti fraud rules. In this way Tier 2 offering is free from double hassle having to register with both SEC and individual states.
Regulation A is one of several exemptions from registering securities with SEC but it offers more flexibility when it comes to how and to whom those securities can be marketed. For example Reg D doesn’t allow general solicitation and for Reg CF solicitation happens on funding portal and acceptance on one can be really competitive. With Reg A offering can be marketed anywhere. Also they are either limited in dollar amount that can be invested or only offered to accredited investors. In contrast Reg A allows all investors to participate in both tiers. In addition, on average Reg A deals takes 78 days which is reasonably short time in comparison to IPO.
It also allows companies to “test the waters” to determine whether or not there is interest among investors. This can be done before anything is filed with the SEC and if company chooses not to go forward it doesn’t have to undergo legal expenses of filing with SEC.
