REGULATION A

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Micro-cap companies that wish to raise capital and list on a National Public Exchange such as NASDAQ, NYSE, or OTC might find that conducting a Regulation A raise could be a viable alternative as compared to cumbersome administrative burdens and the large expense associated with undertaking a traditional Initial Public Offering. (IPO)

In general, Regulation A is an exemption from registration requirements with the SEC, applicable to public offerings of securities that do not exceed 5,000,000 ($5 million) in any one-year period.

Advantages provided by this exemption include the fact that financial statements may not be subject to audit obligations. This is contingent on the amount of securities offered within any one-year period.  There is no SEC reporting requirement until the offering of securities is 10,000,000 ($10 million) in any one-year period and has more than 500 shareholders.

Issuers seeking to utilize Regulation A must indicate the tier its offering is conducted under on the front of its disclosure document or offering circular.  Potential investors must be made aware in that there are two offering formats.

Regulation A has two offering tiers: Tier 1, for offerings of up to $20 million in a 12-month period; and Tier 2, for offerings of up to $50 million in a 12-month period.

Additional requirements apply to Tier 2 offerings, including limitations on the amount of money a non-accredited investor may invest in a Tier 2 offering, requirements for audited financial statements and the filing of ongoing reports submitted to the Securities and Exchange Commission.

In accordance with Securities Act, providing a company offering qualifies for a certain exemption from registration, that offering is not required to be registered or qualified by state securities regulators. 

The offering however is still subject to the Anti-Fraud provisions of the Securities Act.  Additionally, if the offering is made under certain exemptions, the states still have authority to investigate and bring enforcement actions for fraud, impose state notice filing requirements, and collect state fees.

Other advantages for companies considering conducting a Regulation A raise include the ability to attract smaller under-served non-accredited investors, thus giving the issuer an opportunity to expand their investor base.