A Primer on Regulation A

Abstract

Regulation A was established by the U.S. Securities and Exchange Commission in 1936 as a way for small security issues to be exempt from registration. The regulation permits private companies to raise capital from the general public without going through a full-scale public offering. However, Regulation A was considered a costly option for small firms to raise capital compared to other alternatives. The Jumpstart Our Business Startups Act was passed in 2012 to promote the growth of small businesses and startups. The Act included the relaxation of restrictions on Regulation A offerings, allowing small businesses to offer and sell securities to the public with reduced SEC registration under specific conditions. The enhancements offer two tiers of offerings: Tier 1 allows companies to raise up to $20 million in a 12-month period, and Tier 2 allows companies to raise up to $75 million in a one-year period. Both accredited and non-accredited individuals can invest in the offerings, although non-accredited investors have some restrictions. The filing and qualification process for these offerings is less onerous than for traditional public offerings, making them an attractive option for private companies that want to raise capital from the public without the higher offering expenses and regulatory burden of an IPO. This primer serves as an introductory guide for entrepreneurs, investors, researchers, and others who want to understand the nuances of this distinctive securities regulation.

Keywords: Regulation A, SEC, IPO, offering statements, JOBS Act

JEL Classification: G18, G38, L26, M18