Regulation A

Regulation A sits between the no-filing intrastate paths and the full-registration public-offering spine. It is a registration-light path with SEC disclosure review but caps on offering size and, for Tier 2, caps on individual investor commitments.

The JOBS Act split Regulation A into two tiers and a later amendment raised the Tier 2 cap to its current level, which is why the rule is now commonly called "Reg A+."

What Is the Qualification Process for Both Tiers?

Both tiers share a single SEC review process. The mechanics of getting an offering greenlit are the same; the differences are in disclosure depth and post-offering obligations.

Form 1-A offering statement:

• The issuer files a Form 1-A offering statement with the SEC
• The SEC reviews disclosure and either qualifies the offering or asks for amendments
• The SEC issues a notice of qualification (NOT a registration statement)
• The issuer may not sell securities until Form 1-A is qualified

Bad-actor disqualification:

• Certain "covered persons" connected to the offering disqualify the issuer from using Regulation A if they have a disqualifying event in their background
• Covered persons include the issuer, its directors and executive officers who are participating in the offering, any 20%+ beneficial owner of the issuer's voting equity, promoters connected with the offering, and compensated solicitors
• Disqualifying events include certain criminal convictions, SEC and self-regulatory-organization (SRO) disciplinary orders, and Postal Service false-representation orders

Exam Tip: Gotchas

• Regulation A offerings are qualified, not registered. The SEC issues a notice of qualification on Form 1-A. Calling a Regulation A offering "registered" is technically wrong, even though qualification involves SEC review of disclosure similar to (lighter than) an S-1. The terminology distinction has shown up in exam stems before.
• Bad-actor disqualification applies to both tiers. A 20%+ beneficial owner with a disqualifying event blows up the offering regardless of whether the issuer is using Tier 1 or Tier 2.

Which Issuers Are Eligible for Regulation A?

Regulation A is limited to a defined class of issuer. A scenario that asks which issuer CANNOT use Regulation A is testing this list. An eligible issuer:

• Is organized under the laws of the United States or Canada (or a state, province, or territory) AND has its principal place of business in the United States or Canada
• Is not a development-stage "blank-check" company that has no specific business plan or whose plan is just to merge with or acquire an unidentified company
• Is not an investment company registered (or required to be registered) under the Investment Company Act, and not a business development company (BDC)
• Is not issuing fractional undivided interests in oil, gas, or other mineral rights
• Has not been subject to an SEC order suspending or revoking its Exchange Act registration within the past five years
• Is not delinquent on any Regulation A or Exchange Act reports it was required to file in the prior two years
• Is not disqualified under the bad-actor rule

Exam Tip: Gotchas

• A blank-check or shell company, an investment company or BDC, and a foreign (non-US/Canada) issuer are all ineligible for Regulation A. A "which issuer cannot use Regulation A" stem usually names one of these.
• Regulation A is a US/Canada-issuer path. An issuer organized outside the United States or Canada, or with its principal place of business outside them, cannot use it.

What Is Testing the Waters?

One of Regulation A's signature features is the "testing the waters" carve-out, which lets the issuer gauge investor interest both before and after filing the Form 1-A.

Pre-filing communications:

• The issuer can solicit indications of interest to gauge demand before incurring the cost of preparing a Form 1-A
• Pre-filing solicitation materials must state that no money is being solicited, no offer to buy can be accepted until qualification, and an indication of interest creates no commitment
• This is a meaningful carve-out from the general 1933 Act rule that bans pre-filing offers

Post-filing communications:

• The issuer can continue testing the waters after Form 1-A is filed
• Post-filing communications must include the Form 1-A or a link to its EDGAR filing

Think of it this way: Testing the waters lets the issuer take an opinion poll of demand before sinking the cost of preparing the full offering statement. Other 1933 Act registration paths bar all pre-filing offer activity. Regulation A treats demand-gauging as a separate communication category that does not count as an "offer" for these purposes.

Exam Tip: Gotchas

• Testing the waters is permitted both BEFORE AND AFTER the Form 1-A filing. The exam may test whether you know the carve-out covers both windows. Pre-filing solicitation is the unusual part (most other paths forbid it); post-filing solicitation is the routine part.
• Indications of interest are NOT binding commitments to buy. The issuer cannot accept "yes" responses as locked-in orders until qualification is complete. Testing the waters is opinion-polling, not pre-selling.

What Are the Tier 1 Specifics?

Tier 1 is the smaller, lighter-touch version of Regulation A. It caps the deal size in exchange for skipping the audit and ongoing-reporting requirements.

Tier 1 specifics:

• Offering cap: up to $20 million in a 12-month period
• Selling-securityholder sub-cap (for affiliates of the issuer): up to $6 million within the $20 million total
• Audited financial statements are NOT required in Form 1-A
• State Blue Sky review applies: securities sold are not covered securities under NSMIA, so state securities regulators run a merit review. NASAA's coordinated review program lets a single submission go to most participating states at once
• No ongoing SEC reporting after the offering closes. The issuer files Form 1-Z as an exit report and is done

The trade-off is straightforward: Tier 1 gives a smaller and faster path, but the issuer has to clear every state Blue Sky regulator where it plans to sell. For a small local offering that is genuinely confined to a few states, this is a workable path. For an offering that wants to reach investors across many states, the state-review burden often pushes the issuer to Tier 2 instead.

What Are the Tier 2 Specifics?

Tier 2 is the bigger, heavier-touch version. It raises the cap significantly but layers on audit, reporting, and individual-investor disclosure requirements. Tier 2 also brings the NSMIA preemption that is the practical reason most Regulation A deals end up here.

Tier 2 specifics:

• Offering cap: up to $75 million in a 12-month period
• Selling-securityholder sub-cap (for affiliates): up to $22.5 million within the $75 million total
• Audited financial statements ARE required in Form 1-A (and on an ongoing basis)
• NSMIA preemption from state registration: securities sold under Tier 2 are "covered securities," so states cannot require registration. States retain notice-filing, fee, and anti-fraud authority
• Non-accredited investor investment limit: when the securities will NOT be listed on a registered national securities exchange upon qualification, a non-accredited investor cannot invest more than 10% of the greater of annual income or net worth in a single Tier 2 offering. No limit on accredited investors. No limit at all in Tier 1. No limit for Tier 2 offerings that will be exchange-listed upon qualification
• Ongoing SEC reporting: the issuer files an annual report on Form 1-K, a semi-annual report on Form 1-SA, and a current report on Form 1-U for material events

The NSMIA preemption is the single biggest practical reason Tier 2 dominates Regulation A deal flow despite the audit cost. An issuer that plans to sell across many states avoids the multi-state Blue Sky review entirely. The audit cost and ongoing reporting overhead are smaller burdens than running a 50-state merit review.

Exam Tip: Gotchas

• The Tier 2 offering cap is $75 million, not $50 million. The increase took effect March 15, 2021. Study materials citing $50 million reflect pre-2021 rules. The current rule is $75 million.
• The 10% non-accredited investor cap applies ONLY to Tier 2 and ONLY to non-accredited investors. Tier 1 has no investor cap at all. Tier 2 has no cap for accredited investors. Mixing these up is a frequent exam trap.
• Tier 1 is subject to state Blue Sky review; Tier 2 is NSMIA-preempted from state registration. States keep notice filings, fees, and anti-fraud jurisdiction over Tier 2, but they cannot require the issuer to register with the state. This split is the single biggest deal-flow driver and is exam-favorite material.

How Do Tier 1 and Tier 2 Compare Side by Side?

The comparison the exam writes scenarios around:

Real-world example: An issuer wants to raise $30 million from investors across 18 states. The choice:

• Tier 1 is ruled out by the offering size: $30 million exceeds the $20 million Tier 1 cap
• Tier 2 fits the cap at $30 million. The issuer must prepare audited financials in Form 1-A, will face the 10% non-accredited investor limit, must file 1-K / 1-SA / 1-U going forward, and will be NSMIA-preempted from registering with each of the 18 state securities regulators (notice filings and fees still apply state by state)

Exam Tip: Gotchas

• The non-accredited investor cap is 10% of the GREATER of income OR net worth, per offering. Common trap is to flip "greater" to "lesser" or to state the cap as "10% of income." Both are wrong. The investor picks whichever metric (income or net worth) is bigger, then 10% of that figure is the cap.
• Tier 2 ongoing reporting is 1-K, 1-SA, 1-U. Easy mnemonic: K=annual, SA=semi-annual, U=updates (current report). These are Regulation A forms, not Form 10-K / 10-Q / 8-K (which are full Exchange Act periodic reports).
• The selling-securityholder sub-caps are within the offering total, not on top of it. Tier 1's $6 million affiliate sub-cap is part of the $20 million total. Tier 2's $22.5 million affiliate sub-cap is part of the $75 million total.

How Does Regulation A Compare to the Other Two Exempt-Securities Paths?

The three paths in this unit do not really compete with each other in practice because they serve different deal profiles. The contrasts worth keeping in mind:

Exam Tip: Gotchas

• Regulation A qualified securities are freely tradable on qualification. Unlike the two intrastate paths (six-month in-state lock) and unlike restricted securities (covered in the next unit), Regulation A securities have no resale lock. The qualification process is the public-disclosure event that supports free tradability.
• The intrastate paths are state-confined; Regulation A reaches multiple states. If the scenario involves a single-state offering with no SEC filing at all, the issuer is using one of the intrastate paths. If the scenario involves multi-state distribution with a Form 1-A filing, the issuer is using Regulation A. The presence or absence of a federal filing is usually the cleanest tell.

What Should You Check on Exam Day?

• Check the offering size against the tier caps first: $20 million points to Tier 1, up to $75 million points to Tier 2.
• Confirm whether audited financials, ongoing reporting, and the 10% non-accredited investor cap apply. All three attach to Tier 2 only, and the investor cap has its own exception for securities that will be exchange-listed upon qualification.
• Verify the selling-securityholder sub-cap sits inside the total offering cap, not on top of it.
• Confirm the state Blue Sky treatment: Tier 1 gets full state review, Tier 2 is NSMIA-preempted from state registration but still owes notice filings, fees, and anti-fraud compliance.