A Thorough Manual on the Intricacies of Regulation A (Reg A Filings)

Published on
October 24, 2023
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What is Regulation A?

Within the realm of federal securities laws, any endeavor involving the sale or offering of security is bound by two options: either undergo registration with the SEC or seek exemption. Regulation A (often referred to as Reg A) exempts companies from registration obligations and gives companies the opportunity to issue and trade securities without having to fully register with the SEC.

Understanding Regulation A

Using the Exemption Act, companies can issue and sell their securities to the public through two different tiers – Tier 1 and Tier 2, each with their own unique rules.

In both tiers, the issuer must file a report with the SEC using the Form 1-A. This rarticle contains prospectuses, which are important disclosures to potential investors. It is incumbent upon the issuer to furnish investors with the offering circular or guide them on accessing it. Payment for the securities can only be accepted once the SEC staff has officially qualified the issuer's offering statement.

It is important to keep in mind, however, that the SEC's certification does not imply sponsorship of the securities providing, nor does it imply an evaluation of the quality or accuracy of any of the offering documentation or solicitation materials.

Regulation A: Tier 1 vs. Tier 2

When companies choose to take advantage of the Regulation A exemption, they have the option of selling their securities in two different classes, each with their own rules. Regardless of which class is selected, the issuer must file a report with the U.S. Securities and Exchange Commission (SEC) that includes the report as documentation to investors.

Tier 1

At Level 1, companies have the right to report up to $20 million in 12 months.

Companies must also submit their filings to the SEC for review and have those filings properly reviewed by state regulators in the states in which the company plans to sell security.

However, it's worth noting that companies opting for Tier 1 are exempt from ongoing reporting obligations, though they must provide a final status report on the offering.

Tier 2

For Tier 2, the company has the right to issue up to $75 million in 12 months.

Companies reporting under Level 2 are required to submit financial statements and follow regular reporting procedures, including the submission of final reporting.

However, second-hand manufacturers are not required to register or obtain qualifications with government safety regulatory agencies for their products. But they still need to file with the SEC.

It is important to emphasize that a secondary offering has additional requirements, including limiting the amount that non-accredited investors can invest in the secondary security.

The Role of Regulation A

In the world of Regulation A offerings, the array of advantages it offers often offsets the meticulous documentation demands. Within this exemption, there are several benefits, including the option for simplified financial statements, freedom from audit requirements, flexibility in structuring the offering circular with three available formats, and no obligation to furnish Exchange Act reports until a company surpasses the threshold of 500 shareholders and $10 million in assets.

The 2015 updates to Regulation A have introduced a dual-tier system for income generation by companies. For investors keen on acquiring securities offered by firms utilizing Regulation A, it's imperative to discern the tier to which the security belongs.

Every company must clearly state or advertise on the cover page of its disclosure documents what its products sell. This distinction is important because the two layers represent different resources.

Why Regulation A Matters to Investors?

The financial sector operates under rigorous regulations, and this oversight is well-founded. In the year 2020, the collective assets under management (AUM) soared to a staggering $103 trillion, marking an impressive 11% surge compared to the preceding year.

Notably, within North America, AUM experienced an even more substantial expansion, climbing by 12% to reach an impressive $49 trillion. These figures signify tangible sums of money that have been entrusted to investments, underscoring the critical role of oversight and regulatory measures in safeguarding financial investment instruments.

Effects of Regulation A on Investment

Regulations can exert various influences on investment and employment, encompassing several key dimensions:


Investment decisions may be deferred when the outcome of new regulatory initiatives remains uncertain. This effect is especially pronounced for investments that lack reversibility, such as capital assets. The act of investing in new capital typically coincides with the hiring of additional personnel. Smaller enterprises, reliant on a steady stream of financial capital, often grapple with uncertainties regarding how new financial regulations may impact their borrowing capabilities.


Regulatory frameworks can sway job dynamics by prompting investments to relocate overseas, where regulations are less burdensome. This migration of investments can lead to job losses in domestic markets as companies seek more favorable regulatory environments elsewhere. The offshoring or outsourcing of certain functions or production processes may exacerbate domestic job displacement.

Competition and Market Entry

Regulations that impose substantial startup costs, including licensing and permitting requirements, may erect barriers to entry for new businesses in established industries. It can diminish competition within these sectors, potentially curbing overall job creation. High regulatory barriers might dissuade entrepreneurial ventures and startups from entering markets, limiting the pool of potential employers.

Direct Impact on Job Creation

Regulations necessitate firms to allocate resources, including the recruitment of new personnel, to ensure compliance. These resources devoted to compliance are diverted from other productive activities. Estimating the net effect on employment for any specific regulation is challenging. The key question revolves around whether the resources allocated to compliance generate a mix of goods and services that consumers value more than what is sacrificed.

In summary, regulations exert multifaceted influences on investment and employment, encompassing aspects like uncertainty, competitiveness, market competition, and the direct allocation of resources to compliance efforts. These dynamics play a pivotal role in shaping the job landscape within various industries and sectors.

Navigating the Tax Obligations under Regulation A

The primary objective of regulation is to shield clients from untrustworthy or inept tax advisors. In this context, the state's regulatory concerns align with its broader mission of safeguarding consumer interests.

However, a potential hazard lies in the possibility that such regulations could inadvertently prioritize the economic interests of authorized tax advisors or stifle the profession's free practice through excessive bureaucratic controls.

Unveiling Tax Responsibilities for Investors

Whether you're aiming for quick returns or focusing on achieving long-term financial objectives, having a clear grasp of the tax implications associated with your investment gains and losses can significantly enhance your ability to make informed and strategic investment choices.

Tax obligations stemming from investments can be broadly categorized into two distinct types: "realized" and "recognized." The distinction between these two concepts is often pivotal in determining whether the proceeds from an investment sale need to be reported on your tax returns. These tax responsibilities can arise as a result of either gains or losses in your investment portfolio.

Additionally, tax obligations can be further classified into "tax-owing," which is usually associated with profits, and "tax-benefitting," which is typically linked to losses and is sometimes referred to as a "tax asset."

Critical Aspects of Tax Compliance under Regulation A

Tax compliance represents the voluntary commitment of individuals or businesses to adhere to the tax regulations within a specific country. These tax regulations can vary significantly, encompassing both federal and state levels, and even differ from one state to another.

For example, some states may have no property taxes, while others may have higher taxes. Despite the contradictions of tax laws, the basis for tax compliance still exists in one's willingness to respect and comply with those laws.

Individual Tax Compliance

At the heart of individual tax compliance lies the obligation to truthfully report one's annual income. Individuals in the United States must file their taxes in line with their source of income. It's important to note that deliberately concealing income to evade tax payments constitutes tax evasion.

While the responsibility for accurately filing taxes rests with individuals, there is also the option to enlist the services of professionals to aid in this endeavor, given that the penalties for non-compliance can be substantial.

Business Tax Compliance

Business tax compliance is somewhat similar to individual tax compliance, primarily centering on the accurate reporting of annual income. However, managing income at the business level is a complex endeavor.

Businesses are tasked with fulfilling various responsibilities, such as remitting the appropriate state and federal taxes, maintaining records of charitable contributions, obtaining an employee identification number, and more. Non-compliance with tax regulations can lead to severe repercussions for businesses, underscoring the importance of enlisting the services of tax accounting professionals to ensure proper tax compliance.

Mitigating Tax Liabilities: Strategies for Regulation A Investors

While still relatively novel, Regulation A+ is rapidly establishing itself as an attractive option for numerous U.S. businesses in search of investment opportunities.

Often dubbed the "mini-IPO," Regulation A+, endorsed by the Securities and Exchange Commission (SEC), grants non-SEC reporting companies the ability to secure funding from the public. What sets it apart is that issuers are not only permitted but encouraged to promote their offerings publicly. This newfound openness to market their offerings has brought about a transformative shift for many companies.

At its essence, Regulation A+ aims to streamline regulatory complexities, extending an opportunity to entities that may have hesitated to engage in full-fledged IPOs. Simultaneously, it opens doors for non-accredited investors to participate in a growing array of promising startups and businesses.

Test the Waters

The initial step toward a successful Regulation A+ (Reg A+) endeavor involves what is commonly known as "testing the waters."

As sanctioned by the SEC, the "test-the-waters" provision grants issuers the liberty to engage with potential investors and the public through advertising efforts. Essentially, this practice allows a company to gauge the level of interest investors might hold in their business before committing substantial resources and capital to the process.

Numerous motivations drive companies to consider capital-raising through this avenue, including enhancing brand visibility, securing funds, or tapping into external perspectives and insights. Yet, the invaluable ability to gauge investor sentiment stands out as one of its most compelling and enlightening aspects.

Crafting an Effective Message is Paramount

A company's quest to secure the right investors necessitates a well-executed marketing approach for the proposed offering. Central to this strategy is the messaging employed by the company.

Crucial to grasp is the journey that potential investors traverse through the marketing funnel. In the context of Regulation A+ (Reg A+), this journey commences with investors encountering your brand for the first time, progressing to acquiring deeper insights about your enterprise and culminating in their commitment to invest.

To ensure a seamless progression along this funnel, every communication must be meticulously tailored and pertinent, delivering value and equipping potential investors with a comprehensive understanding of your company. It empowers them to appreciate why your enterprise warrants their attention, support, and invaluable capital.

Be Consistent and Precise in Reaching Your Audience

It's not just about the content you convey; it's equally essential to amplify these key messages to ensure they reach the intended recipients.

Even if a company crafts impeccable content to advocate for its Reg A+ aspirations, it becomes futile if there's no audience to absorb it. Consequently, marketing your Reg A+ isn't solely about articulating the right messages effectively; it's equally crucial to connect with the right individuals in the right locations at the opportune moments.

In this regard, adopting a multi-channel marketing strategy is prudent. By harnessing an array of tools encompassing email, social media, search engines, podcasts, videos, and more, you can extend your outreach, ensuring your message resonates with as many pertinent individuals as possible.

The Interplay between Regulation A and Equity Crowd-funding

In the realm of crowd-funding transactions, there are three distinct participants: funders, fundraisers, and platforms. Each of these parties has its own set of interests, and at times, these interests can collide, leading to clear conflicts, particularly between funders and fundraisers. This scenario bears some resemblance to the dynamics seen in traditional banking between lenders and borrowers, primarily driven by information asymmetry.

However, funders, unlike professional lenders such as banks, are often exposed to greater risks exacerbated by the emotional decisions they might make.

The relationship between platforms and two types of actors, fundraisers and fundraisers, is nuanced and somewhat contradictory. Fundraising and grassroots growth drive the platform. Therefore, their interests may be similar to fundraisers.

Tension occurs when the platform realizes that the project is not suitable and chooses not to accept it. Such decisions typically stem from the platform's perception of higher risks to its reputation compared to the potential growth reward in that particular situation. However, it's important to note that maintaining a strong reputation is crucial for attracting participants to the platform.

Exploring Equity Crowd-funding: A New Horizon

Equity crowd-funding represents a digital avenue for securing capital from investors to support a private business. In exchange for their financial contributions, investors are granted equity ownership in the business. This crowd-funding method is facilitated through online platforms where businesses establish profiles featuring their pitches, financial reports, and relevant information.

Crowd-funding platforms typically levy a percentage fee on the funds raised as compensation for their services. Additionally, many platforms impose monthly listing fees and may apply extra charges for payment processing.

It's important to note that you might also incur expenses for ancillary services like accounting to streamline the necessary paperwork. It's crucial to distinguish equity crowd-funding from rewards-based crowd-funding, where backers receive rewards, typically products or services, in exchange for their contributions.

Equity crowd-funding stands apart from other small-business funding approaches due to its absence of a debt component. Instead of committing to repay a business loan, you opt to sell ownership shares in your company to investors.

How Regulation A Influences Equity Crowd-funding Practices

Regulation crowd-funding has the potential to deliver substantial advantages to small businesses, startups, and investors. However, effectively maneuvering through the regulatory framework and mitigating the inherent risks tied to crowd-funding investments will be pivotal for its success.

It champions investment democratization, enabling individuals to invest in promising early-stage companies, thereby fostering entrepreneurship. Moreover, it widens the pool of potential investors for emerging businesses, contributing to economic expansion and job creation.

Nevertheless, this landscape remains subject to an array of regulations and compliance requisites, which can be a daunting challenge for small businesses. The prescribed investment limits for individuals may curtail the capital that companies can amass, hindering their pursuit of growth objectives.

Additionally, there's a risk of fraudulent activities and other misconduct within the crowd-funding sphere. Investors may not benefit from the same level of due diligence and oversight as they would in traditional securities offerings.

Balancing Risks and Rewards in Crowd-funding Ventures

Balancing risk in your investment portfolio involves a nuanced evaluation of your tolerance for potential losses. It's akin to the age-old advice of not putting all your eggs in one basket: while including a high-risk, high-reward investment in your portfolio can lead to substantial gains, it also carries the potential for significant financial setbacks if things don't go as planned.

However, if you've constructed a well-diversified, resilient portfolio, you can harness the potential benefits of a high-risk investment without jeopardizing your overall financial strategy.

Understanding your risk appetite entails defining how you intend to structure your ideal portfolio and what you're willing to relinquish in the event of an unfavorable outcome. This prudent approach ensures you can navigate the unpredictabilities of the investment landscape while safeguarding your financial stability.

Expert Opinions: Quotes, Advice, and Predictions

Under regulation A Tier 1, advocates can raise up to $20 million in donations over 12 months. They can collect $6 million of this money for the sale of securities held by the issuer.

To issue a Class 1 security, the issuer must not only meet the required criteria established by the SEC but also have a statement providing approval from the state security regulator of the state in which the security is intended to be used. Companies electing Tier 1 are not required to continue reporting other than submitting a final report on Form 1-Z to update their bid status.

Level 2 allows sellers on behalf of participating product owners to collect up to $50 million in a 12-month period, subject to $15 million in capital. The report regarding the second announcement does not require the approval of the national security agency, unlike the first announcement. However, Tier 2 issuers must comply with reporting requirements, including annual reports on Form 1-K, semi-annual reports on Form 1-SA, and current report on Form 1-U.

It is worth noting that there are investment restrictions on secondary products if the secondary security is not ready to be listed on the national securities exchange. Investors must qualify as accredited or authorized investors for investments that do not exceed 10% of their annual income or expenses (excluding the value of their residence and other credit benefits).

If you are considering investing, it is recommended that you consult your state's securities regulator to learn more about the issuer and its key players. You can access the SEC's EDGAR filings to view the company's filings and other information regarding the offering.

Practical Takeaways and Actionable Strategies

  • Regulation A is a regulatory exemption provided by the SEC, which pertains to public offerings of securities.
  • In 2015, Regulation A was amended to introduce two different levels to accommodate different types of investments.
  • Under Phase 1 (maximum $20 million), companies are not required to meet regular disclosure obligations but are required to provide information on the results delivered.
  • In contrast, for secondary products (up to $75 million), companies must provide financial statements and follow up with regular reporting that includes advertising that leaves an up-to-date status of the given.

Craft a sophisticated strategy that ensures your messaging resonates consistently across these channels, maintaining your company's prominence in the minds of potential investors.

Consider enlisting the assistance of a reputable public relations (PR) firm, as they can offer invaluable insights and connections to enhance your outreach efforts.

However, don't consider your work complete once you've amassed a pool of interested potential investors. Continual engagement is key. Keep the lines of communication open by generating and disseminating pertinent content, and employ a client relationship management (CRM) system to streamline this intricate process.

In essence, the success of a Reg A+ offering hinges on the sustained attention and awareness of investors at every stage. By adhering to these three strategic steps, you can methodically and effectively assess, mobilize, and maintain investor interest.

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