Benefits of Using Regulation A to Raise Money

Regulation D is the most common SEC exemption used to raise capital, however, Regulation A has distinct advantages.  The best way to describe Reg A is as a bridge between Regulation D and a public offering.  It gives you advantages from both.  You are limited to raising 5 million in a twelve month period so if you need a larger amount, Reg D Rule 506 is still your best bet.  The SEC is considering raising that amount to 50 million and once they do, Regulation A will become a more viable option for large raises as well.

Why you should consider using Regulation A to raise money.

With Reg A you do not have to complete an official filing registration with the SEC, as you would when going public.  Instead, you need to file a Form 1-A that includes the offering circular, disclosures, and addendums.  The SEC has a provision in Regulation A that allows you to “test the waters” to see if investors are interested in your offering before filing the paperwork.  This is a distinct advantage for companies that are working with limited resources.  As long as you don’t accept any capital prior to filing the forms, you can promote your offering and see if investors are interested in participating.

In Regulation A you are allowed to raise capital from non-accredited investors. This is a huge advantage for companies that don’t have an investor network or feel their company or product would appeal to the masses, rather than a set group of investors.  You can still accept capital from accredited investors but are no longer limited to working with them only.

You are also able to advertise your offering with Regulation A.  You can do so on the radio, print, television etc.  The advertisements should conform with ones from a public offering.  This is a distinct advantage over Regulation D, which only allows advertising in Rule 506 (c) and you are only allowed to advertise to accredited investors.

The securities are not restricted so investors can sell them and liquidate at any time.  This gives investors more flexibility and the option to either hold their shares long term or sell them as needed. One concern investors often have with Regulation D offerings is when and how they will be able to liquidate.  This provision within Reg A eliminates that concern.

There are three formats companies can choose from when completing their offering and disclosure documents, including a question and answer format.  This makes the process of preparing a Reg A offering fairly straightforward.  Since you don’t have to file until you know people are interested, you can save a lot of time while perfecting your offering statement.

If you are looking to raise capital there are multiple exemptions from registration that you should explore.  The decision on which one to use should be based on your strategy for marketing the offering, how much you want to raise, where your investors are located, and the amount of time you have to complete paperwork.  Understanding your goals and capabilities prior to issuing a private offering will help you to be more successful.

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