What Is Regulation A+? Tier 1 vs. Tier 2 Explained

Regulation A, often called Regulation A+ since its 2015 expansion, is an exemption under the Securities Act of 1933 that lets eligible companies offer and sell securities to the public without going through full SEC registration. The offering is reviewed and “qualified” by the SEC staff instead of declared effective, and the disclosure is scaled down from what a registered offering requires. Some market commentators call it a “mini IPO,” although the label is informal and the legal structure is different from a registered IPO. The rule divides offerings into two levels, Tier 1 and Tier 2, with different dollar limits, financial statement requirements, ongoing reporting and state law treatment.

This guide explains what each tier allows, who can use Regulation A, how the two tiers compare and where to find the official text. Nothing here is legal advice, and issuers should rely on securities counsel and the current rules.

In brief

Regulation A is an SEC exemption for public offerings by eligible U.S. and Canadian companies, set out in Rules 251 to 263 (17 CFR 230.251 to 230.263).
Tier 1 is limited to $20 million in a 12-month period; Tier 2 is limited to $75 million in a 12-month period, according to Rule 251(a) and the SEC’s guidance page.
Tier 2 requires audited financial statements and ongoing SEC reporting; Tier 1 does not require audits unless the issuer already has them, and Tier 1 files an exit report instead.
Tier 1 offerings must also be registered or qualified with each state where they are sold; Tier 2 offerings are not subject to state registration or qualification but remain subject to state antifraud authority.

What Regulation A is

Under the Securities Act, offers and sales of securities must be registered with the SEC unless an exemption applies. Regulation A is one of those exemptions. It was created under Section 3(b) of the Securities Act and was expanded by the Jumpstart Our Business Startups (JOBS) Act. The SEC adopted final rules on March 25, 2015, that split Regulation A into the two tiers discussed here.

An issuer using Regulation A files an offering statement on Form 1-A through the SEC’s EDGAR system. The SEC staff reviews it, and sales may begin only after the offering statement is qualified. The qualified offering circular is the main disclosure document investors receive. For the step-by-step process, see our guide on how Regulation A works from Form 1-A to qualification.

Unlike a private placement under Regulation D, a Regulation A offering can be marketed to the general public once the offering statement is filed, subject to the rules on offers. For the comparison, see our guide on Reg A versus Reg D.

Who can use Regulation A

Rule 251(b) sets the issuer eligibility conditions. In summary, the issuer must:

Be organized under the laws of the United States or Canada (or a state, province or territory of either) with its principal place of business in the United States or Canada.
Not be a development stage company that has no specific business plan or purpose or whose plan is to merge with or acquire an unidentified company.
Not be a registered investment company or a business development company.
Not be issuing fractional undivided interests in oil, gas or other mineral rights.
Not have been subject to a Section 12(j) order within five years before filing.
Have filed all reports required under Regulation A or the Exchange Act during the two years before filing, or for the shorter period it was required to file.
Not be disqualified under Rule 262, the “bad actor” provision.

Rule 261(c) defines eligible securities as equity securities, debt securities and securities convertible or exchangeable into equity interests, including guarantees of such securities. Asset-backed securities, as defined in Item 1101(c) of Regulation AB, are excluded. These conditions are summarized on the SEC’s Regulation A guidance page, and the text is on the eCFR.

Tier 1 at a glance

Tier 1 is available for offerings in which the aggregate offering price plus aggregate sales in the preceding 12 months does not exceed $20 million, including not more than $6 million offered by selling securityholders that are affiliates of the issuer.

Key features, per the SEC’s guidance:

Financial statements. Balance sheets and related statements for the two previous fiscal year ends (or the time the issuer has existed). Audits are not required unless the issuer already has audited statements prepared for another purpose.
Ongoing reporting. An exit report on Form 1-Z within 30 calendar days after the offering is terminated or completed (Rule 257(a)). There are no annual or semiannual reports required under Regulation A.
State law. The offering must be registered or qualified in each state where securities are offered or sold. The SEC notes that NASAA offers a coordinated review program for multistate Tier 1 offerings.
Investor limits. None under Regulation A itself.

Tier 2 at a glance

Tier 2 is available for offerings of up to $75 million in a 12-month period, including not more than $22.5 million offered by selling securityholders that are affiliates of the issuer.

Key features:

Financial statements. Audited financial statements are required, in accordance with either U.S. generally accepted auditing standards or the standards of the Public Company Accounting Oversight Board. Interim statements may be unaudited, as Form 1-A’s Part F/S states.
Ongoing reporting. An annual report on Form 1-K, a semiannual report on Form 1-SA and current reports on Form 1-U, plus an exit report in certain circumstances (Rule 257(b)). The SEC’s guidance says Form 1-K is due within 120 calendar days of fiscal year-end and Form 1-SA within 90 calendar days after the first six months of the fiscal year.
State law. Tier 2 issuers are not required to register or qualify the offering with state securities regulators, although state antifraud authority still applies and state filing fees may be due.
Investor limits. Under Rule 251(d)(2)(i)(C), in a Tier 2 offering of securities that will not be listed on a national securities exchange upon qualification, a purchaser must either be an accredited investor or limit the purchase to no more than 10 percent of the greater of annual income or net worth for a natural person, or of revenue or net assets for an entity. The issuer may rely on a purchaser’s representation unless it knows it to be untrue.
Exchange Act registration. Tier 2 securities are conditionally exempt from the Section 12(g) registration requirement while the issuer stays current on its Regulation A reports and uses an SEC-registered transfer agent, subject to size-based conditions described in the SEC’s guidance.

Side-by-side comparison

Feature	Tier 1	Tier 2
12-month offering limit	$20 million	$75 million
Selling securityholder cap (affiliates)	$6 million	$22.5 million
Audited financials	Not required unless already prepared	Required
Ongoing SEC reports	Exit report on Form 1-Z	Forms 1-K, 1-SA, 1-U, and exit report in some cases
State registration or qualification	Required	Preempted for the offering
Non-accredited investor purchase limit	None under Reg A	10% test unless exchange-listed on qualification

The limits above come from Rule 251(a), and the SEC’s compliance guide describes the secondary-sale cap as no more than 30 percent of the aggregate offering price in an issuer’s first Regulation A offering and in any subsequent offering qualified within one year of the first. Always check the current text of the rules and any inflation or rule changes on SEC.gov and the eCFR before relying on a number.

How to choose between the tiers

Issuers generally weigh these factors:

Amount to raise. Anything above the Tier 1 ceiling requires Tier 2.
Cost and time. An audit and ongoing reports add cost in Tier 2, while Tier 1 adds state-level review work.
States. If a company plans to sell in many states, preemption in Tier 2 can reduce the number of state filings.
Investor base. The 10 percent test affects how much non-accredited investors may buy in Tier 2 if the securities will not be listed on qualification.
Liquidity plans. Some issuers use Regulation A in connection with plans to list securities on an exchange; the exchange’s own listing standards apply and are separate from the SEC exemption.

A worked example, with made-up numbers

A fictional company wants to raise $12 million from the public. The amount is below the Tier 1 ceiling, so either tier is available. If it picks Tier 1, it may avoid an audit if it has none, but it must qualify the offering in each state where it sells. If it picks Tier 2, it must include audited statements and commit to annual, semiannual and current reports, but it does not register in each state.

Now suppose the company wants to raise $40 million. Tier 1 is no longer available because the amount exceeds the ceiling, so Tier 2 is the only Regulation A option. If a non-accredited investor with an annual income of $80,000 and a net worth of $150,000 wishes to buy shares in a Tier 2 offering of unlisted securities, the 10 percent test applies to the greater of the two figures, which is $150,000, so the cap on that purchase would be $15,000. These figures are for illustration only.

Common misconceptions

“Regulation A is the same as an IPO.” An IPO is a registered offering. Regulation A is an exemption with SEC qualification, scaled disclosure and different reporting.
“Tier 2 means no state involvement.” States lose registration authority over the offering but keep antifraud enforcement and may charge filing fees.
“Any company can use it.” Eligibility rules exclude, among others, non-North American issuers, investment companies and blank-check style companies.
“Qualified means approved.” Qualification signals that the SEC staff completed its review process; it is not an endorsement of the securities or a statement that the disclosure is accurate.
“The limits never change.” The Securities Act and rules can be amended, so confirm numbers against the current Rule 251.

Where to read the official text

17 CFR 230.251 to 230.263 on the eCFR.
The SEC’s Regulation A guidance for issuers on SEC.gov.
Form 1-A and its instructions on SEC.gov.
NASAA for state-level information on Tier 1 offerings.

FAQ

What is the main difference between Tier 1 and Tier 2?

Size, audits, reporting and state treatment. Tier 2 permits larger offerings, requires audited financial statements and continuing reports, and preempts state registration. Tier 1 has a lower ceiling and requires state qualification.

Can a company switch tiers?

A tier is chosen for each offering when the offering statement is filed. A company may use a different tier for a later offering if it meets the conditions, and the 12-month aggregate limits include earlier Regulation A sales.

Do investors need to be accredited?

Not in Tier 1 under Regulation A. In Tier 2, non-accredited purchasers of securities not listed on an exchange upon qualification are subject to the 10 percent test in Rule 251(d)(2)(i)(C).

What reports does a Tier 2 issuer file after the offering?

Under Rule 257(b), a Tier 2 issuer files an annual report on Form 1-K, a semiannual report on Form 1-SA and current reports on Form 1-U, with a special financial report in certain cases and an exit report in the circumstances the rule describes.

Is Regulation A+ a different rule from Regulation A?

No. “Regulation A+” is a common name for Regulation A as amended in 2015 to add the two tiers. The rule itself is Regulation A.

Does the SEC charge a fee to file Form 1-A?

Rule 252(b) states that no fee is payable to the SEC for submitting or filing an offering statement on Form 1-A or an amendment. Other costs, such as audits, legal work, state fees and broker-dealer fees, can be significant.