Regulation A-Plus: What the Mini-IPO Actually Costs You

Regulation A-plus gets described as a mini-IPO. That is fair shorthand, and like most shorthand it leaves out the part that matters.

Here is the structure. Regulation A has two tiers. Tier 1 permits up to twenty million dollars in a twelve-month period. Tier 2 permits up to seventy-five million. You register on Form 1-A, and unlike an S-1, you may test the waters — you can solicit indications of interest before you file, provided those materials are filed with the Commission.

The advantages are real. Tier 2 preempts state Blue Sky registration for sales to qualified purchasers, which removes a substantial layer of cost. Financial statement requirements are lighter than an S-1. And the offering can be sold directly to retail investors.

Now the part that gets left out.

Form 1-A is qualified by the SEC staff. It is not automatic. The staff comments on it, and in my experience those comments land in the same places they land on an S-1: the business description, the use of proceeds, and the risk factors. Companies that treat Form 1-A as a lighter document tend to draw more comment rounds, not fewer.

Tier 2 carries ongoing reporting. An annual report on Form 1-K, a semiannual report on Form 1-SA, and current reports on Form 1-U. That is lighter than the Exchange Act calendar, but it is not nothing, and a company that stops filing loses the exemption for future offerings.

Tier 2 also caps what non-accredited investors may put in — generally ten percent of the greater of their annual income or net worth. If your offering depends on large retail checks, that cap constrains you.

And Regulation A-plus does not create a trading market. Qualification lets you sell shares. It does not give you a ticker symbol. If you want your shares quoted, that is a separate process involving a market maker and a filing with FINRA.

So who is Regulation A-plus actually right for? A company with a genuine retail following, a defined use of proceeds, and the ability to carry semiannual reporting. Consumer brands do well with it. Companies with a complicated capital structure and no natural audience generally do not.

I handle Form 1-A drafting and the qualification process on a flat fee, because the scope of that work is definable in advance and the cost should be knowable before it begins.

This is Inside Securities Law. I'm Frederick M. Lehrer. General information, not legal advice.