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Reg A+ Part 2 - Understanding the Two Tiers


If you read my last post on Regulation A+ (Reg A+), you know you can use it to raise up to $50 million from anyone regardless of their net worth. You also know that you can advertise your offering before filing anything with the SEC to make sure your investors are interested in investing before spending thousands of dollars on preparing your offering.

In today's post, I will go over the two tiers of Reg A+ and why you may want to do an offering under one tier rather than the other. I will also go over why you may want to think through which tier you want to use before you proceed with doing a Reg A+ offering.

Reg A+ consists of 2 tiers: Tier 1 and Tier 2. Both tiers allow you to raise money from accredited and non-accredited investors. Under Tier 1, you can raise up to $20 million from any investor. Under Tier 2, you can raise up to $50 million from any investor.

While Tier 1 doesn’t limit the amount of money that you can raise from non-accredited investors, Tier 2 does impose this limit. In addition, under Tier 1, you must register with all the states where you are raising money. Tier 2 preempts state law, which means that as long as you comply with the exemption under federal securities laws, you do not have to register your offering with the states where you are soliciting or selling to investors.

Because Tier 1 requires you register with all the states where you are conducting your offering, it is likely that you cannot take advantage of the “test the waters” provisions of Reg A+ if you do a Tier 1 offering. This is because filing with the state where you are conducting your offering is usually required before you advertise.

You may ask why you would restrict yourself to a Tier 1 offering, which only allows you to raise up to $20 million, comply with the laws of every state where you are conducting your offering as well as federal law, and not be able to determine investor interest before you spend thousands of dollars in professional fees in preparing your offering.

Here are a few reasons: First, under a Tier 1 offering, there is no limit on the amount of money a non-accredited investor can invest. Your disclosure requirements are also less onerous, meaning you will likely spend less time and money creating your offering materials. Finally, you do not have the burden of ongoing disclosures under a Tier 1 offering, whereas you are obligated to provide annual and semi-annual reports to the SEC if you conduct an offering under Tier 2.

Like all offerings under the exemptions to the securities laws, there are pros and cons to the exemption that you choose. So, it's important to know what your options are and find the right one for you before you dive into structuring your offering.

If you have questions, we are here to help. You can schedule a free strategy session with us by clicking here.

This article is provided for informational purposes only and should not be construed as legal advice. Read our disclaimer here.

#exemptions #SEC #securitytokenoffering #securities

 
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