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+."

The Qualification Process (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, the underwriters, 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.

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.

Tier 1

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.

Tier 2

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: 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
• 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.

Tier 1 vs Tier 2 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.

Regulation A vs 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.