The Securities Act of ’33 requires securities
sold in the U.S. must be registered with the SEC, with limited exceptions for certain types of securities (exempt securities) and certain types of transactions (e.g. Reg D, Reg S, Reg A, and more). Regulation A is a type of exempt transaction that allows issuers to raise limited amounts of capital (less than $5 million) by selling securities with reduced regulatory requirements and costs.
Regulation A offering is not a “private” offering, in fact, it is often referred to as a “mini-registration” because the securities can be sold to the public following the issuance. The criteria and characteristics of a Regulation A offering are outlined below:
Question | Answer |
| How much capital can be raised? | Up to $5 million per 12 month period.Note: Of the total $5 million, $1.5 million can be sold by insiders, affiliates, or existing selling shareholders |
| What is the relevant time period to raise $5 million? | Issuers can raise up to $5 million limit in any 12-month period. |
| What SEC filings are required before the issuance? | Issuers must file Form 1-A with the SEC for review before selling the securities.What is Form 1-A? Form 1-A operates like a mini-registration statement. It includes an offering circular (disclosure document) and exhibits (including unaudited financials). |
| What ongoing SEC filings are required after the issuance? | Every 6 months, the issuer must file seven copies of Form 2-A with the SEC to report sales made under Regulation A.What about other ongoing disclosures? Ongoing SEC disclosures, such as 10-k, 10-q, 8-k as required under the Securities Exchange Act of 1934, and SOX reporting is not required for issuers that raise capital via Regulation A. |
| What SEC filing is required at completion of the issuance? | Issuer must submit a final Form 2-A within 30 calendar days after the termination, completion or final sale of securities in the offering. |
| Who cannot issue securities through Regulation A? | Certain issuers are ineligible to use Regulation A:
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| What disclosures must be made available to Reg A investors? | Before the sale:A Preliminary or Final Offering Circular must be furnished to the prospective purchaser at least 48 hours prior to the mailing of the confirmation of sale. With the trade confirmation: A Final Offering Circular must be delivered to the purchaser with the confirmation of sale, unless it has been delivered to that person at an earlier time. |
| What type of advertising can a Regulation A issuer use to attract investors? | Regulation A securities can be offered publicly, using general solicitation and advertising, including to retail and unaccredited investors.Can a Regulation A issuer test the water? Companies may “test the waters” to determine market interest in their securities before filing Form 1-A with the SEC. For example, an issuer could publish or deliver a written document to prospective purchasers or make scripted radio or television broadcasts to determine whether there is an interest in their contemplated securities offering. |
| What limitations, if any, are there on the resale of securities purchase in a Regulation A offer? | Investors do not receive “restricted securities,” meaning the securities can be freely resold to other investors, including to retail and unaccredited investors. |
| How does Regulation A integrate with state law registration (i.e. the Blue Sky laws)? | Regulation A securities offerings must be registered at the state level (securities issued in a Reg A offering not Federal Covered). Because of this Regulation A offerings are uncommon in practice. |
Knopman Notes
For test-takers it is important to understand and know the rules and regulations of the exempt transactions – even if they are not frequently used in practice. For Regulation A, one aspect to keep in mind is that the $5 million limit is determined by aggregating the issuer’s two most recent Form 2-A filings (filed every 6 months).
Relevant Exams
Series 7, Series 24, Series 65, Series 66, Series 79,
