Quick Answer
In an issuer's first Regulation A offering, sales by existing securityholders cannot exceed 30% of the offering's aggregate price. Separately, in a Tier 2 offering not yet listed on a national exchange, a purchaser who is not an accredited investor can invest no more than 10% of the greater of their annual income or net worth.
These two limits protect different people in different ways. The secondary-sale cap protects buyers from an offering that turns out to be mostly existing owners cashing out, while the non-accredited investor limit protects any one purchaser from overcommitting to a single deal.
How Much Can Existing Holders Sell in the First Year?
The portion of an offering's aggregate price attributable to selling securityholders cannot exceed 30% in:
- The issuer's first Regulation A offering, or
- Any later Regulation A offering qualified within one year of that first offering's qualification date
Think of it this way: Regulation A is supposed to raise new capital for the business. A cap on selling-securityholder proceeds keeps a first offering from becoming mostly an exit ramp for insiders.
Exam Tip: Gotchas
- The 30% sub-cap only applies near the start of an issuer's Regulation A history. It covers the first offering and any offering qualified within one year of it, not every Regulation A offering the issuer ever runs.
How Much Can a Non-Accredited Investor Invest in a Tier 2 Offering?
When a Tier 2 offering's securities are not listed on a national securities exchange at qualification, a purchaser who is not an accredited investor is capped at 10% of the greater of:
- Their annual income or net worth, if a natural person, or
- Their revenue or net assets for the most recently completed fiscal year, if not a natural person
The issuer may rely on the purchaser's own representation of income, net worth, revenue, or net assets, unless the issuer knows at the time of sale that the representation is false. Knowledge the issuer picks up after the sale does not defeat that reliance.
Exam Tip: Gotchas
- The 10% limit only applies to Tier 2 offerings that are not exchange-listed. Tier 1 offerings carry no equivalent investor-level dollar limit, and an already-listed Tier 2 offering does not need it either.
What Should You Check on Exam Day?
- Apply the 30% selling-securityholder cap only to the first Regulation A offering, or one qualified within a year of it.
- Use the greater of income or net worth for a natural-person purchaser under the Tier 2 10% limit; use revenue or net assets for an entity.
- Remember the 10% limit protects a single non-accredited purchaser; it does not cap the offering's total size.
- Confirm the issuer can rely on a purchaser's own representation unless it knows at the time of sale that the representation is false.