Not every securities offering goes through full Securities and Exchange Commission (SEC) registration. Several exemptions allow issuers to raise capital with reduced regulatory requirements, but each comes with its own rules and limitations.
Regulation A (Conditional Small Issues Exemption)
Regulation A provides an abbreviated registration process using Form 1-A (not a full S-1 registration statement). The disclosure document is an offering circular, not a prospectus.
Two Tiers
| Feature | Tier 1 | Tier 2 |
|---|---|---|
| Maximum offering | $20 million in 12 months | $75 million in 12 months |
| Affiliate sales limit | $6 million | $22.5 million |
| State registration | Required (blue-sky compliance) | Preempted (federal only) |
| Financial statements | Not required to be audited | Must be audited |
| Ongoing reporting | Not required | Required (annual, semiannual, current event reports) |
| Investment limits (non-accredited) | None | Greater of 10% of annual income or 10% of net worth |
Qualification and Tradability
- A Reg A offering may not sell securities until the SEC qualifies the offering circular (Form 1-A), a review-and-comment process similar in spirit to registration. Contrast Reg D, where the issuer files Form D as a notice after the first sale, with no pre-sale SEC qualification
- Securities sold under Reg A are freely tradable, not restricted. This differs from Reg D private-placement securities, which are restricted and cannot be freely resold
Regulation D (Private Placements)
Regulation D provides an exemption from SEC registration for private offerings. These are the most commonly used exemptions for capital raising.
Key Rules
| Rule | Maximum Offering | Investor Limits | General Solicitation |
|---|---|---|---|
| Small-offering tier | $10 million in 12 months | No limit on number or type | Generally not permitted (exceptions apply) |
| Private-placement tier (no solicitation) | No dollar limit | Unlimited accredited + up to 35 non-accredited (must be sophisticated) | NOT permitted |
| Private-placement tier (with solicitation) | No dollar limit | Unlimited accredited only | Permitted (must verify accredited status) |
Accredited Investor Definition
An accredited investor includes:
- Individuals with income exceeding $200,000 ($300,000 joint) for each of the last 2 years with reasonable expectation of the same
- Individuals with net worth exceeding $1 million (excluding primary residence)
- Certain entities: banks, insurance companies, registered investment companies
- Entities with total assets exceeding $5 million
General Solicitation and Non-Accredited Disclosure
- General solicitation is any advertising or public communication that offers the securities broadly: newspaper, website, or social-media ads, public seminars, or mass emails to people with whom the issuer has no prior relationship. Communications that condition the market for the offering count as general solicitation
- When non-accredited investors participate (the no-solicitation private-placement tier), the issuer must give them disclosure comparable to a registered offering, typically a private placement memorandum (PPM) with audited financial statements
- An accredited-only offering has no mandated disclosure document, because accredited investors are presumed able to evaluate the offering and obtain information on their own
Filing Requirement
- Form D must be filed with the SEC within 15 days of the first sale
- Securities sold under Reg D are restricted securities. They cannot be freely resold without registration or an exemption.
Exam Tip: Gotchas
The no-solicitation private-placement tier allows up to 35 non-accredited investors but prohibits general solicitation. The general-solicitation tier permits advertising but requires ALL investors to be accredited and the issuer must take reasonable steps to VERIFY their status. Know which path allows what.
Intrastate Offering Exemption
The intrastate exemption covers offerings made entirely within one state to residents of that state.
Requirements
- Issuer must be organized, doing business, and offering/selling within the same state
- Doing business test (80% rule): Must meet at least one of:
- 80% of revenues from in-state
- 80% of assets in-state
- 80% of net proceeds used in-state
- Majority of employees based in-state
- Resale restriction: Securities cannot be resold to out-of-state residents for 6 months from the date of sale by the issuer
Exam Tip: Gotchas
The intrastate-offering rule requires ALL buyers to be state residents. Even ONE sale to an out-of-state buyer can destroy the exemption for the ENTIRE offering, not just that one sale.