By Yoan Valiente, Founder & CEO · Updated · Part of the CRE investment glossary
How Regulation A works
Regulation A exempts a public offering from Securities Act registration. Unlike Rule 506(b), an offering under Regulation A can be marketed to the general public. In exchange, the issuer prepares an offering statement on Form 1-A and the SEC staff must qualify it before sales begin. It is also called Reg A+.
The Form 1-A is a public document with disclosure about the issuer, the risks, the use of proceeds and financial statements. That is a heavier lift than a Rule 506 private placement, which has no required disclosure document for accredited investors.
The two tiers
Rule 251 sets the dollar limits, counted over a 12-month period and including limited amounts sold by affiliated securityholders:
| Tier 1 | Tier 2 | |
|---|---|---|
| Offering limit (12 months) | $20,000,000 | $75,000,000 |
| Of which affiliate securityholders may sell | Up to $6,000,000 | Up to $22,500,000 |
| State registration or qualification | Applies | Not required |
| Audited financial statements and ongoing reports | See the Form 1-A instructions | Required |
| Investment cap for a non-accredited natural person | None in Rule 251 | 10% of the greater of annual income or net worth, unless accredited |
Tier 2 and state securities regulators
For offerings of $20 million or less, the SEC says a company can elect Tier 1 or Tier 2. The difference that matters to many issuers is state review: Tier 2 issuers are not required to register or qualify their offerings with state securities regulators, while Tier 1 offerings go through state review as well. The price of Tier 2 is audited financials, ongoing reporting and a limit on how much a non-accredited investor may invest in the offering.
Regulation A and Rule 506 for a real estate sponsor
Most real estate syndications use Rule 506 because it needs no SEC qualification and, under 506(b), no public disclosure document for accredited investors. Regulation A is a different tool: it suits an issuer that wants to sell to the public, including non-accredited investors, and can carry the cost of an audited offering statement.
Regulation A also has eligibility requirements for the issuer and bad-actor provisions, and not every kind of company can use it. Check eligibility in the rule and with counsel before planning around it. This page is general information, not legal advice. Ask securities counsel before you rely on an exemption.
What to watch for
Teams new to Regulation A tend to underestimate the process:
- Qualification is not instant: the SEC staff reviews the Form 1-A, and sales wait for qualification.
- The 12-month limit is cumulative across the offering and can include affiliate resales.
- Tier 2 means audited financials and continuing reports after the offering.
- The Tier 2 investment cap for non-accredited investors (10% of the greater of annual income or net worth for a natural person, unless accredited) shapes how you structure subscriptions.
Primary sources
General information, not legal, tax or investment advice. Your operating agreement, offering documents, counsel and CPA govern your deal.