United States: Regulation A: Easier Access To The U.S. Capital Markets Is Coming

Last Updated: February 14 2014
Article by Guy P. Lander

In December 2013, the U.S. Securities and Exchange Commission ("SEC") proposed new rules that would permit U.S. and Canadian companies that are not SEC reporting issuers ("Reg A Issuers") to sell up to $50 million of their securities in any rolling 12 month period with reduced regulation and related expense, and immediate subsequent public trading of the purchased securities. This proposed Regulation A offers access to capital and the U.S. capital markets with reduced initial and ongoing expenses, reduced legal liability, potentially higher valuations, increased capital raising possibilities and improved currency for acquisitions and employee compensation, and with limited subsequent SEC reporting and without ongoing SOX compliance. In contrast to a private placement, Regulation A offers "free trading" securities and could be used as either a transitional stage on the road to becoming a full-fledged public company or simply as a means to accessing the U.S. capital markets with reduced fees and concomitant expense.

The proposed Regulation A consists of:

Tier I Offerings: Up to $5 million in a rolling 12 month period, $1.5 million of which may be sold by stockholders.
Tier II Offerings: Up to $50 million in a rolling 12 month period, $15 million of which may be sold by stockholders.1

For offerings up to $5 million, issuers may use Regulation A Tier 1 or Tier II, Regulation D or another Securities Act exemption under the U.S. Securities Act of 1933 (the "Securities Act").

Regulation A offers significantly reduced ongoing reporting and compliance obligations compared to a registered offering. The following reporting and compliance obligations would NOT apply to Regulation A companies (and their directors, officers and stockholders):

  • the SEC's proxy statement rules;
  • the SEC's tender offer rules and going private rules;
  • Section 16 shareholder reporting by directors, executive officers and 10% stockholders, related short swing profit recapture and prohibition on "short" transactions;
  • Section 13 D/G market alert disclosure by 5% stockholders;
  • audit committee independence requirements of SOX;
  • SOX Sec. 404 internal controls;
  • director and officer loan prohibitions under SOX;
  • CEO/CFO SOX certifications;
  • conflict minerals and resource extraction disclosures under the Dodd-Frank Act; and
  • pay ratio disclosure under the Dodd-Frank Act.

Eligible Issuers

The Regulation A exemption would be available to any company that is both organized in and has its principal place of business in the United States or Canada, but is NOT:

  • subject to reporting under the Securities Exchange Act of 1934 (the "Exchange Act");
  • an investment company;
  • a development stage company with no specific business plan or purpose or whose business plan is to engage in a merger or acquisition with an unidentified company (e.g., SPACs, BDCs, blank check and shell companies);
  • disqualified under the "bad actor" provisions of the proposed rules (similar to Reg. D Rule 506(d)); or
  • an issuer of fractional undivided interests in oil or gas rights, or similar interests in other mineral rights.

Additionally, issuers conducting Regulation A offerings under the proposed rules must also:

  • have filed the ongoing reports required by the proposed rules (described below) during the preceding two years of filing a new Regulation A offering statement; and
  • not be subject to an SEC order revoking its registration under the Exchange Act under Section 12(j) of that Act during the preceding five years.

Eligible Securities

Offerings under proposed Regulation A must consist only of equity securities, debt securities and debt securities convertible into or exchangeable for equity securities, including any guarantees of those securities. Asset-backed securities will not be eligible to be offered under the proposed rules.

Eligible Transactions

Transactions permitted under Regulation A would include:

  • primary capital raising offerings;
  • offerings by stockholders;
  • offerings under a dividend or interest reinvestment plan or an employee benefit plan;
  • securities issuances upon the exercise of outstanding options, warrants or rights or conversion of outstanding securities;
  • pledging of securities as collateral; and
  • continuous offerings in an amount expected to be sold within two years, as long as the offering begins within two days after the offering statement has been qualified.

The proposed rules would not be available for at-the-market offerings or business combination transactions.

Investment Limitation on Purchasers

The proposed rules would limit the amount of securities that a potential investor may invest in a Tier 2 offering to 10% of the greater of the investor's annual income or net worth, calculated in accordance with Regulation D guidelines. There is no similar limit for a Tier 1 offering. Tier 2 issuers would be able to rely on an investor's representation of compliance with these limitations unless the issuer knew at the time of sale that the representation was false. However, there is no limit on how much an investor may purchase in the open market after the offering.

Integration of Safe Harbors

Regulation A offerings will not be integrated with:

  • prior offers or sales of securities (outside Regulation A); or
  • subsequent offers and sales of securities that are:

    • registered under the Securities Act, except as provided in Rule 254(d);
    • made under Rule 701;
    • made under an employee benefit plan;
    • made under Regulation S;
    • made more than six months after completion of the Regulation A offering; or
    • crowdfunding offers (once rules are adopted).

Offering Process

To offer securities under Regulation A, a company must file an "offering statement" with the SEC via EDGAR for both Tier 1 and Tier 2 offerings, and the SEC must affirmatively "qualify" the Offering Statement. For a company that has not previously sold securities under either Regulation A or an effective registration statement under the Securities Act, confidential, non-public review of draft offering statements would be permitted before filing. However, the non-public documents would have to be publicly filed no later than 21 days before qualification. This enables Regulation A issuers to maintain confidentiality through road shows. In contrast, emerging growth companies must come out of confidential treatment before road shows.

A company pursuing a Regulation A offering would be able to "test the waters", i.e., seek indications of interest, from any potential investors before filing the offering statement. The company would be required to file any solicitation materials as an exhibit to its offering statement. See "Solicitation Communications" below.

As with a registered offering, if underwriters are participating in the Regulation A offering, the offering statement and underwriting arrangements would be required to be filed with and approved by FINRA, unless an exemption is available.

Although the process for filing, review and qualification of Regulation A offering statements would be similar to that for full blown registration statements, given the reduced disclosures, the Regulation A offering process should be somewhat faster and less costly than

a full blown registration statement. However, that remains to be seen. Offering Statement

The Regulation A offering statement would be filed on Form 1-A and consist of three parts: Part I (Notification), Part II (Offering Circular) and Part III (Exhibits). Part I provides notice of certain basic information about the company and its proposed offering, including disclosure of issuer eligibility, "bad actor" disqualification, unregistered securities sold within the past year, and a summary of key issuer financial information and offering details. Part II, the offering circular, is similar to a prospectus in a registered offering, and Part III is similar to the exhibit requirement in a registration statement.

As proposed, disclosure required in the offering circular would cover substantially similar information to that required on a Form S-1 for the IPO of an emerging growth company, including two years of audited financial statements for Tier 2 offerings, MD&A, risk factors, a three-year description of the business, compensation information for the three most highly paid officers or directors and related-party transaction disclosure. The information required is intended to be similar to that required of smaller companies in a prospectus, but more limited in certain respects.

Pricing can be done by supplement rather than an amendment, which is easier.

Financial Statements

Under the proposed rules, issuers conducting Tier 1 and Tier 2 offerings will be required to comply with the financial statement and auditing requirements as set forth in the table below.

Canadian issuers can use IFRS instead of U.S. GAAP.

Financial Statement and Audit Requirements
Type of Offering Tier 1 Tier 2
Financial Statements Two years financial statements
(or since inception if less than 2 years)
Two years financial statements
Audit Required No, only required to the extent that they were prepared for other purposes Yes, required
Audit Standard U.S. GAAS or PCAOB standards PCAOB standards
Auditor Independence Must meet Rule 2-01 of Regulation S-X

Need not be PCAOB-registered
Must meet Rule 2-01 of Regulation S-X

Need not be PCAOB-registered

Continuous or Delayed Offerings

The proposed rules permit continuous or delayed offerings for, among other types of offerings, secondary offerings, securities offered and sold under dividend reinvestment plans or employee benefit plans, securities issued upon the exercise of options, warrants or rights, and certain other continuous offerings. The proposed rules also require amendments to the offering statement to be filed and requalified annually to include updated financial statements and fundamental changes to the information in the offering statement.

Solicitation Communications – Test the Waters Expanded to Pre-and Post-Filing of Offering Statement

An issuer using Regulation A could "test the waters," i.e., seek indications of interest, from all types of potential investors both before and after filing and offering statement, unlike EGCs, which are limited to qualified institutional buyers and institutional accredited investors. Any solicitation material would need to be filed with the SEC and must also contain certain disclaimers and legends indicating that sales under Regulation A would be contingent on qualification of the offering statement by the SEC, and the delivery of a final offering statement. Any solicitation materials used after filing of the offering statement with the SEC would have to be preceded or accompanied by a preliminary offering circular or contain a notice informing potential investors where and how the most current preliminary offering circular can be obtained (including by providing a URL link to the offering circular or offering statement on EDGAR).

The preliminary offering circular would have to be delivered at least 48 hours in advance of a sale. A final offering circular would have to be delivered within two business days after the sale in cases where the sale was made in reliance on the delivery of a preliminary offering circular. Issuers and intermediaries would be able to satisfy the delivery requirements for the final offering circular under an "access equals delivery" approach when the final offering circular is filed and available on EDGAR.

The proposed rules would amend Rule 254(d) to provide that where an issuer decides to register an offering after soliciting interest in a contemplated, but abandoned, Regulation A offering, any Tier 1 or Tier 2 offers made pursuant to Regulation A would not be subject to integration with the subsequent registered offering, unless the issuer engaged in solicitations of interest in reliance on Regulation A to persons other than qualified institutional buyers (QIBs) and institutional accredited investors. An issuer soliciting interest in either a Tier 1 or Tier 2 offering to persons other than QIBs and institutional accredited investors must wait at least 30 calendar days between the last solicitation of interest and the filing of the registration statement with the SEC.

Ongoing Reporting and Compliance

Tier 1 issuers would be required to file electronically with the SEC certain information about their offerings within 30 days after completion or termination of the offering on a new form Form 1-Z, which is an exit report. Tier 2 issuers would be required to file annual, semiannual and current reports with the SEC via EDGAR until the company becomes a reporting company or, subject to certain exceptions, until there are fewer than 300 holders of record of the securities of the class sold per Regulation A securities.

For Tier 2 issuers:

  • Annual reports on Form 1-K would be required for the fiscal year in which the offering statement became qualified and for every fiscal year thereafter. The annual report would update the information contained in the company's offering circular, including two years of annual audited financial statements. The annual report would be filed within 120 days of the company's fiscal year end (compared to the Form 10-K filing deadline of 60 to 90 days, depending on the size of the company).
  • Semiannual reports on Form 1-SA covering the first half of each fiscal year of the company would be required beginning with the first fiscal year for which financial statements relating to the first half of that year were not included in the offering circular. The semiannual report would consist primarily of unaudited financial statements and MD&A. The semiannual report would be filed within 90 days of the end of the second quarter (compared to the Form 10-Q deadline of 40 or 45 days, depending on the size of the company) and would be filed only once a year (compared to three times for Form 10-Q).
  • Current reports on Form 1-U would be required upon the occurrence of certain specified events, and would be filed within four business days of the event (similar to the Form 8-K filing requirement). Form 1-U reportable events are a reduced number of Form 8-K events, including bankruptcy; material modification to the rights of securityholders; changes in accountant; non-reliance on previous financial statements; changes in control; departure of the principal executive officer, principal financial officer or principal accounting officer; and unregistered sales of 5% or more of outstanding equity securities. Additionally, any "fundamental change" to the nature of the company's business would trigger a Form 1-U filing. The fundamental change required to be reported would be major and substantial changes in the issuer's business or plan of operations or changes reasonably expected to result in such changes, such as significant acquisitions or dispositions, or the entry into, or termination of, a material definitive agreement that has or will result in major and substantial changes to the nature of an issuer's business or plan of operations.
  • Exit Report on Form 1-Z could be filed by a Tier 2 issuer to exit the ongoing reporting regime at if any time after completing reporting for the fiscal year in which the offering statement was qualified if the securities of the relevant class are held of record by less than 300 persons and offers and sales under a qualified offering statement are not ongoing and it is current in its Regulation A filing obligations.

Secondary Markets

Securities sold under Regulation A would have the status of "free trading" securities and would not be "restricted securities" under Rule 144 under the Securities Act (unlike securities sold in Regulation D or Rule 144A private placements). Additionally, the ongoing reports required after a company's Tier 2 offering would satisfy a broker-dealer's obligations under Rule 15c2-11 to maintain records of basic information about the company and its securities. This would permit broker-dealers to publish quotes for the company's stock, which should facilitate secondary market activity in Regulation A securities.

State "Blue-Sky" Laws Pre-Empted

State "blue sky" laws would be preempted for both the offer and sale of securities in Tier 2 offerings, which is a significant benefit. For Tier I offerings, state "blue sky" laws would not be pre-empted. Blue sky laws would also continue to cover fraudulent conduct in both Tier I and Tier II transactions. The proposed rules accomplish this preemption by defining "qualified purchaser" under Section 18(b)(3) of the Securities Act to include all offerees in a Regulation A offering, and all purchasers in a Tier 2 offering.

Securities that are "Widely-Held" Trigger Exchange Act Registration under Section 12(g)

Under the proposed rules, when the securities of a Regulation A issuer become "widely-held", the issuer may become subject to registration and periodic reporting under Section 12(g) of the Exchange Act. The Section 12(g) threshold is: an issuer having total assets exceeding $10 million and a class of securities held of record by either 2,000 persons, or 500 persons who are not accredited investors. For purposes of determining holders of record, beneficial owners who hold their shares through a broker are not counted. Such shares are instead counted at the broker level, so that each broker who is a record holder for one or more beneficial owners holding their shares in "street name" would constitute one shareholder of record (i.e., no "look through" to beneficial owners).

Canadian issuers using Regulation A could rely on the Rule 12g3-2(b) information supplying exemption from Exchange Act registration.


Under the proposed rules, sellers of securities would not be subject to Section 11 liability of the Securities Act. However, they will be subject to liability to investors under Section 12(a)(2) for any offer or sale by means of an offering circular or an oral communication that includes a false or misleading statement of fact. Additionally, other anti-fraud and civil liability provisions of the securities laws would apply, including Section 17 of the Securities Act, Section 10(b) of the Exchange Act and related Rule 10b-5. As a result, underwriters in a Regulation A offering would probably require due diligence renew comparable to a registered offering.


The proposed Regulation A offers a real opportunity for U.S. and Canadian issuers to access the U.S. capital markets and obtain the benefits of "registered" securities with less regulation and ongoing expense.


1. All sales by selling securityholders under either Tier 1 or Tier 2 will be aggregated with all other sales of Regulation A securities by the issuer and other securityholders for purposes of calculating the maximum permissible amount of securities that may be sold during any 12-month period. Additionally, affiliates can use these rules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions