Quick Answer
Regulation A lets an issuer sell securities to the general public without a full Securities Act registration, though the Securities and Exchange Commission (SEC) still must qualify the offering before any sale. Tier 1 caps a 12-month offering at $20 million; Tier 2 caps it at $75 million and preempts state registration for the security.
Regulation A is sometimes called a "mini-registration," but it is a public offering exemption, not a private placement: the securities can be sold to any investor, and the issuer still discloses through a filed offering statement.
What Are Tier 1 and Tier 2?
Regulation A splits into two tiers by size, with different obligations attached to each:
| Feature | Tier 1 | Tier 2 |
|---|---|---|
| 12-month offering cap | $20,000,000 | $75,000,000 |
| Cap on sales by affiliated selling securityholders | $6,000,000 | $22,500,000 |
| State blue-sky registration | Applies; the issuer must still register or qualify in each state | Preempted; a Tier 2 security is a covered security, so states cannot require registration or a merit review |
- Selling securityholder: an existing holder of the issuer's securities who sells shares into the offering, rather than the issuer selling newly issued shares
- A covered security is exempt from state-level registration by federal law; a state may still require a notice filing and keep its authority to pursue fraud
Exam Tip: Gotchas
- A Tier 2 issuer still owes states a notice filing. Preemption removes state registration and merit review, not every state-level touchpoint.
- The dollar caps run on a rolling 12-month test, not a per-offering test. Aggregate sales include the gross proceeds of every security sold under another offering statement in the 12 months before the start of, and during, the current offering. A second offering that starts before the first offering's 12-month window closes must add the first offering's proceeds into the calculation.
How Long Can a Continuous Offering Stay Open?
The 12-month figures above cap the dollars raised. Regulation A has a separate limit that caps how long a continuous offering may run.
- Regulation A names six kinds of continuous or delayed offering. The two-year and three-year limits below belong to the sixth kind only, the evergreen offering that starts within two calendar days of qualification and runs continuously. That offering must be one the issuer reasonably expects to sell within two years of the initial qualification date
- The issuer may not offer or sell once more than three years have passed since that date. Filing a new offering statement buys a runway: the issuer may keep selling under the old statement until the new one is qualified, or until 180 days after the third anniversary, whichever comes first
- Note the verb. Filing the new statement opens the runway; the issuer needs it qualified to keep selling past the runway, and it must stay current on its annual and semiannual filings. Current reports are not part of that condition
Think of it this way: the 12-month figure answers "how much money," while the two-year and three-year figures answer "how long is the store open." A Tier 2 issuer that maxes out its $75 million cap in month three still has to close the offering, or requalify, once three years pass, unless it has filed a new offering statement.
Exam Tip: Gotchas
- Two Regulation A limits sound alike and are not. The 12-month figure limits size. The two-year and three-year figures limit how long a continuous offering may stay open.
What Should You Check on Exam Day?
- Match the dollar figure to the tier: $20 million and $6 million for Tier 1, $75 million and $22.5 million for Tier 2.
- Confirm the aggregate-sales test rolls forward 12 months, so an overlapping second offering must add the first offering's proceeds.
- Distinguish the 12-month dollar cap from the two-year and three-year continuous-offering time limits.
- Remember Tier 2 preempts state registration and merit review but not the state notice filing.