Regulation A outlines two ‘tier” options when having the public invest in companies pre-IPO. Tier 1 is an offering of up to $20 million in a 12-month period, while Tier 2 allows $20 million in also a 12-month period. Unlike Tier 1, those companies offering securities under Tier 2 will have continuous reporting requirements. Although, those Tier 2 securities could be listed on a national exchange to the level that the company applies for listings and meets those requirements for that specific exchange. Smaller companies in early stages use Regulation A as the most-cost effective way to raise money.

In order for a company to qualify for both tiers it must only accept payment for the sale of its securities once its offering materials have been approved by the staff at the SEC (Security Exchange Commission). It is important for an investor to check that the offering has in fact been qualified. Specifically for Tier 1 offering, the offering materials need to be qualified by state securities regulators in the states in which the company plans to sell its securities.

For selling shares the company may include their offerings held by other shareholders. Due to this capability, a new investor’s purchase can be from shares of an existing shareholder.  Whether an existing shareholder’s shares are being offered will be known by the offering circular.

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