Understanding Regulation A+ Tier 2
Tier 2 in plain English
Regulation A Tier 2 permits an eligible issuer to offer and sell up to $75 million of securities in a 12-month period, subject to the rule’s requirements.
Tier 2 requires audited financial statements and ongoing reporting. It also imposes investment limits on certain non-accredited investors. [R03] The $75 million figure is a regulatory ceiling. It is not a commitment from investors, a valuation of the company, or an amount the company is assured of receiving.
Example: A company plans a $20 million Tier 2 offering. If investors purchase $8 million of securities, its gross proceeds are $8 million.
Gross proceeds means money received before deducting offering expenses. Net proceeds means the amount remaining after applicable expenses.
Whether the company can accept and use the $8 million depends on the offering’s terms, including any minimum fundraising condition.
Understanding the 12-month limit
The limit applies over a 12-month period. It should not be described as a fresh $75 million allowance that automatically resets on January 1.
Sales by existing securityholders can also count toward the offering limit, and additional limits apply to those sales. [R01] A selling securityholder is an existing holder selling securities through the offering.
This distinction matters because proceeds from that holder’s sale generally go to the selling holder, rather than to the company.
SDR discovery question: Is the company seeking new operating capital, allowing existing holders to sell, or considering both?
Which companies may use Regulation A?
Regulation A is available to eligible companies organized in the United States or Canada with their principal place of business in one of those countries.
Eligibility exclusions include certain investment companies, blank-check companies, reporting-delinquent issuers, and issuers affected by specified disqualifying events. [R01] Eligibility means satisfying the legal conditions for using the offering pathway.
Bad actor disqualification refers to specified events involving the issuer or certain associated people that can prevent reliance on the exemption.
An SDR gathers facts relevant to eligibility. The legal team determines whether the issuer qualifies.
Can an already-listed public company use it?
An eligible SEC-reporting company may use Regulation A. Existing public-company reporting obligations must be considered when planning the offering and subsequent reporting. [R01] For discovery, record: The company’s legal name; Its ticker and listing market, if applicable; Whether it is current in SEC filings; Which entity would issue the securities; Whether the proposed security is an existing or new class.
Do not assume that an existing NASDAQ or NYSE listing answers all questions about a new security’s issuance, listing, or trading arrangements.
What can the company offer?
Regulation A permits specified equity and debt securities, including certain convertible securities and warrants. It excludes asset-backed securities as defined in Regulation AB. [R01] Key definitions:
| Term | Meaning |
|---|---|
| Equity | An ownership interest in an entity |
| Debt | An obligation to repay money under agreed terms |
| Convertible security | A security that can convert into another security under specified conditions |
| Warrant | A right to buy a security at a specified price under stated terms |
| Collateral | Property or rights pledged to support an obligation |
A note secured by an asset and a legally defined asset-backed security are not automatically the same thing. This is particularly relevant to royalty-linked instruments and IP structures. Their eligibility depends on the actual instrument and issuer, rather than their marketing names.
Who may invest?
Tier 2 can include both accredited and non-accredited investors. An accredited investor is a person or entity meeting specified legal criteria. For individuals, qualifying criteria can include wealth, income, or certain professional credentials. “Accredited” does not mean that the government recommends the investment. [R04] For a non-accredited individual, the Tier 2 purchase limit generally equals 10% of the greater of annual income or net worth. Different financial measures apply to entities. The limit does not apply to purchases of securities that will be listed on a national securities exchange upon qualification. [R01] Simplified example: Assume an individual has:
- Annual income of $80,000.
- Net worth of $200,000, calculated under the applicable rules. The greater figure is $200,000. Ten percent is $20,000.
This illustrates the calculation; the offering’s onboarding process must apply the actual requirements and any relevant exception.
What is Form 1-A?
Form 1-A is the offering statement submitted to the SEC for a Regulation A offering. Its offering circular describes the company, the securities, financial information, intended use of proceeds, and material risks.
Disclosure means providing information investors need to understand the offering. A material risk is a risk significant enough to matter to an investor’s decision.
The issuer prepares the filing with its advisers, responds to SEC staff comments where applicable, and seeks qualification. Sales under Regulation A require qualification of the offering statement. [R01]
Qualification is different from endorsement
SEC qualification is the regulatory step that permits sales under the qualified offering statement, subject to applicable requirements.
It is not an endorsement of the company, an approval of the investment’s merits, or a guarantee of returns. Use accurate language:
Avoid Use instead
“The SEC approved this investment.”
“The SEC qualified the offering statement.”
“The company is guaranteed to raise $75 million.” “Tier 2 allows eligible offerings up to $75 million in a 12-month period.” “Qualification proves the valuation.” “Investors must evaluate the disclosed terms, valuation assumptions, and risks.” The distinction between qualification and investment merits is fundamental to Regulation A communications.
What is “testing the waters”?
Testing the waters means soliciting indications of interest in a possible offering under the applicable rules. An indication of interest expresses potential interest; it does not establish a completed investment.
Regulation A permits these communications subject to conditions, including required statements and filing requirements. Prequalification interest gathering does not permit completing sales before qualification. [R01] For training purposes, distinguish two conversations:
- Issuer discovery: An SDR discusses a company’s possible financing needs.
- Investor solicitation: Someone communicates about purchasing securities in a specific offering. The team should identify which conversation it is conducting and use the corresponding approved materials.
Audits and ongoing reporting
An audit is an independent examination of financial statements under applicable auditing standards. Tier 2 requires audited financial statements in the offering documents. It also generally requires annual, semiannual, and specified current reports.
| Form | General | purpose |
|---|---|---|
| 1-K | Annual reporting | |
| 1-SA | Semiannual reporting | |
| 1-U | Reporting specified significant events |
An Exchange Act reporting company can satisfy the Tier 2 periodic and current reporting requirements through its applicable Exchange Act reports. [R01] SDR discovery question: Does the company have audited financial statements, and who manages its financial reporting?
The answer helps the specialists assess readiness.
State requirements
Tier 2 offerings do not require separate state securities registration or qualification. However, state antifraud authority, applicable notices, and fees can remain relevant. [R04] Therefore, “no separate state qualification” should not be translated into “no state requirements.”
Potential benefits and corresponding responsibilities
Potential benefit Corresponding responsibility or limitation
Access to a public offering pathway Issuer and security eligibility must be established Participation by a broader investor audience
Investor limits and onboarding requirements may apply
Capacity for offerings up to $75 million Actual fundraising depends on investor demand and offering terms No separate state offering qualification
Applicable state notices, fees, and antifraud requirements remain
Flexibility to offer eligible debt or equity The security’s rights and obligations must be clearly documented Public disclosure supporting investor evaluation
Audits, preparation, and continuing reporting require resources
Regulation A’s requirements support a defined offering process. They do not guarantee that the process will be economical or suitable for every company. [R01]
Practical discovery scenario
Prospect:“We own valuable software and want to raise $15 million without selling ordinary shares in the parent company.” SDR response:“The first step is understanding your funding needs, software rights, and financial readiness. The specialists can then assess whether debt, preferred equity, a subsidiary structure, or another arrangement fits.
They would also determine whether Regulation A is an appropriate offering pathway.” Information to record: Proposed issuer; Funding target and intended use; Ownership of the software and related rights; Existing financing obligations; Available audited financial statements; Desired investor rights; Target timeline and executive decision makers.
The discovery call establishes the facts needed for analysis. It does not select or approve the transaction structure.