Glossary
Reg A tiers
The two tiers of Regulation A compared, their offering limits, investor limits, audit and reporting obligations, and state preemption, and why most campaigns choose Tier 2.
The Reg A tiers are the two versions of a Regulation A offering that the 2015 amendments created. Tier 1 allows a smaller raise with lighter federal obligations but full state review. Tier 2 allows a larger raise, with audited financials, ongoing reporting, and an investment limit for non-accredited investors, and in exchange is preempted from state registration. The company chooses the tier in its Form 1-A.
The tiers side by side
| Tier 1 | Tier 2 | |
|---|---|---|
| Maximum in 12 months | $20 million | $75 million |
| Of which by affiliated selling securityholders | $6 million | $22.5 million |
| Financial statements | Not required to be audited | Audited |
| State registration | Required in each state of sale (or NASAA coordinated review) | Preempted; most states still require a notice filing and fee |
| Non-accredited investor limit | None | 10% of the greater of annual income or net worth (for an entity, revenue or net assets), unless the securities list on a national exchange |
| Ongoing reports | Exit report on Form 1-Z | Annual Form 1-K, semiannual Form 1-SA, current reports on Form 1-U, and Form 1-Z on exit |
The limits are in Rule 251; the reporting schedule is in Rule 257. Form 1-K is due within 120 days of fiscal year end, Form 1-SA within 90 days after the end of the first half of the fiscal year, and Form 1-U within four business days of a triggering event. The Tier 2 cap rose from $50 million to $75 million in March 2021. Accredited investors are not subject to the Tier 2 investment limit.
A Tier 2 issuer that uses a registered transfer-agent and stays current in its reports is conditionally exempt from the shareholder-count trigger for Exchange Act registration under Section 12(g), subject to size limits.
Why most campaigns choose Tier 2
The deciding factor is usually not the dollar cap. It is state preemption. A Tier 1 offering has to clear each state where it will be sold, and until it does, ads must exclude those states and the offer cannot be made nationally. A Tier 2 offering runs one national campaign on one set of terms. Many raises that would fit under the Tier 1 cap choose Tier 2 for that reason and accept the audit and reporting cost. See blue-sky-laws.
Further reading
- Blue sky preemption in Reg A
- What a $150M Tier 2 cap would change
- Reg A+ vs Reg A
- securities-offering-exemptions-compared
This page is general information about securities rules, not legal advice. Which tier fits a particular raise is a question for the company's securities counsel.