Understanding the Differences Between Reg A Tier 1 and Tier 2 Offerings
Regulation A (Reg A) offerings provide an attractive way for small and medium-sized businesses to raise capital. However, there are some key differences between Tier 1 and Tier 2 offerings that companies and investors should be aware of. In this post, we’ll cover the differences between Reg A Tier 1 and Tier 2 offerings.
Disclosure Requirements
One of the key differences between Tier 1 and Tier 2 offerings is the level of disclosure required. Tier 1 offerings require less disclosure than Tier 2 offerings. For example, Tier 1 offerings only require two years of audited financial statements, while Tier 2 offerings require three years of audited financial statements. Tier 2 offerings also require ongoing reporting requirements, including annual and semi-annual reports.
Investment Limits
Another difference between Tier 1 and Tier 2 offerings is the investment limits. In a Tier 1 offering, non-accredited investors are limited to investing no more than 10% of their net worth or annual income, whichever is greater. In a Tier 2 offering, non-accredited investors are limited to investing no more than 10% of their net worth or annual income, whichever is less.
State Blue Sky Laws
Reg A offerings are subject to state “Blue Sky” laws, which are state-level securities laws designed to protect investors from fraudulent activities. Tier 1 offerings are subject to Blue Sky laws in the states where the securities are sold, while Tier 2 offerings are subject to Blue Sky laws in all 50 states and the District of Columbia.
Marketing and Advertising
Another difference between Tier 1 and Tier 2 offerings is the level of marketing and advertising allowed. Tier 1 offerings are subject to limitations on the type and amount of advertising that can be used to promote the offering. Tier 2 offerings, on the other hand, allow for more liberal advertising and marketing activities.
Costs and Fees
The costs and fees associated with Tier 1 and Tier 2 offerings also differ. Tier 2 offerings are generally more expensive than Tier 1 offerings, due to the additional disclosure and reporting requirements. Companies raising capital through a Tier 2 offering may also be required to pay ongoing fees to maintain their registration with the SEC.
Conclusion
In summary, there are several key differences between Reg A Tier 1 and Tier 2 offerings, including disclosure requirements, investment limits, state Blue Sky laws, marketing and advertising restrictions, and costs and fees. Companies and investors should carefully consider these differences when deciding which type of offering to pursue or invest in. While Tier 2 offerings offer more flexibility and a higher fundraising limit, they also come with additional costs and requirements. Tier 1 offerings may be a better fit for companies with lower capital needs and simpler reporting requirements.
