For a business that wants to raise capital on a much larger scale, Regulation A can change the conversation.
Instead of limiting your investor base to accredited investors, Regulation A can allow you to publicly market an offering to both accredited and non-accredited investors. Under Tier 2, an issuer can raise up to $75 million during a 12-month period, making it possible to build a capital-raising strategy around a much broader audience than a traditional Regulation D offering permits.
That opportunity is significant, but it comes with a different process. You do not simply prepare a private placement memorandum, begin accepting subscriptions, and file a notice after the first sale. A Regulation A offering must go through an SEC qualification process before securities can actually be sold. For companies accustomed to Regulation D, that is one of the biggest adjustments to understand.
The process is more involved, but it is also manageable when the business, financials, legal structure, and offering strategy are organized from the beginning.
Regulation A Is Built for a Different Kind of Capital Raise
Regulation D has been responsible for an enormous amount of private capital formation, and for many companies it remains the right exemption. But there is a natural limitation to relying exclusively on private offerings, particularly for businesses that want to build a large national investor audience.
Rule 506(c), for example, allows general solicitation, but every purchaser must be an accredited investor. Regulation A can provide public marketing while also allowing qualifying non-accredited investors to participate.
That difference matters when a company has spent years building an audience that extends well beyond accredited investors. Thousands of people may follow the business on social media, subscribe to its email list, attend webinars, listen to podcasts, or simply know the company through its reputation, yet only a fraction may qualify to invest in a 506(c) offering.
Regulation A can turn a much larger portion of that audience into potential investors.
For the right company, that is why the qualification process is worth considering. You are taking on additional upfront securities work because you are seeking access to a very different capital-raising platform.
The Process Starts Before Form 1-A
One of the biggest mistakes a sponsor can make is assuming the Regulation A process begins when the Form 1-A gets filed.
There is quite a bit of work that should happen first.
Before securities counsel can properly prepare the offering, the issuer needs to determine what it is actually offering. That includes the amount being raised, the securities being sold, minimum investments, distributions or other economics, management structure, use of proceeds, investor rights, and the overall business or investment strategy.
For real estate sponsors, there may be another layer of structural planning. Is this a traditional real estate fund? Is the strategy built around multiple acquisitions? Will a series structure be used? How will management fees, acquisition fees, distributions, and sponsor compensation work?
Those are not simply drafting questions. They determine what investors are buying and therefore become part of the disclosure that will ultimately be reviewed by the SEC.
This is why we view information gathering and offering design as the first phase of the Regulation A process. Getting the structure right at the beginning can save substantial time later.
Financial Readiness Matters Earlier Than Many Sponsors Expect
Financial statements are another major part of the process, particularly for a Tier 2 offering. Tier 2 issuers are required to include audited financial statements in their offering circulars. The Form 1-A also includes detailed financial and narrative disclosure, which means the accounting and legal workstreams need to move together rather than treating the audit as something to worry about near the end.
That can be especially important for a business that has grown informally. If books need to be cleaned up, historical transactions need to be documented, related-party arrangements need to be clarified, or entities need to be reorganized, those issues can slow the process considerably. The earlier they are identified, the easier they are to address without holding up the entire offering.
In our Regulation A planning, we therefore look at financial readiness as part of the front-end process rather than a box to check immediately before filing. The legal documents can only move so far if the financial information needed for the offering is not ready.
Preparing the Form 1-A
The central filing for a Regulation A offering is Form 1-A.
Form 1-A is much more than a short notice to the SEC. It includes basic information about the issuer, a detailed offering circular, financial statements, and exhibits supporting the offering. Those exhibits can include organizational documents, subscription agreements, material contracts, documents defining investor rights, legal opinions, and testing-the-waters materials, among other items.
The offering circular is effectively where the company tells the investor what the business is, what the investment is, how the money will be used, who is managing the company, what conflicts may exist, and what risks the investor needs to understand.
For a real estate sponsor, that often means translating a business that the sponsor understands instinctively into disclosures that somebody outside the organization can understand and evaluate.
The goal is not merely to get paperwork onto EDGAR. The goal is to describe the offering accurately and completely enough to move through SEC review while also creating an offering document that investors can actually use.
Then the SEC Reviews the Offering
Once the offering statement is filed, the SEC staff can review it and provide comments. This is the part of Regulation A that sometimes worries issuers unnecessarily. Receiving SEC comments does not automatically mean there is something wrong with the offering. Comment and response rounds are a normal part of the qualification process, and more than one round may be necessary depending on the offering. Our Regulation A materials generally describe qualification as a process involving filing, SEC comments, responses and amendments before the offering reaches qualification.
A comment may ask the issuer to clarify disclosure, expand discussion of a risk, explain an agreement, revise financial information, address an inconsistency, or provide additional information about the structure.
Counsel then works with the issuer, accountants, auditors, and other professionals as necessary to prepare responses and amend the Form 1-A.
This back-and-forth is one reason preparation matters so much. A company that knows its structure, has organized records, understands its economics, and has its financial work underway is in a much better position to respond efficiently.
Can You Market Before Qualification?
One of the more interesting features of Regulation A is the ability to “test the waters.”
Regulation A permits an issuer to solicit interest from potential investors before or after filing the Form 1-A, subject to specific rules concerning legends, disclosures, and the materials being used. Testing the waters does not mean the issuer can start accepting investor money before qualification, but it can provide an opportunity to begin developing market interest while the regulatory process is moving forward.
For a company already investing heavily in marketing, that can be extremely valuable.
Rather than treating legal qualification and investor acquisition as two completely separate projects, the company can begin thinking about its audience, message, funnel, and investor education well before the first investment is accepted.
Of course, securities marketing is still securities marketing. Materials need to be coordinated with the offering, and the rules around testing the waters need to be followed. The ability to begin developing interest should not be mistaken for permission to market without compliance oversight.
Qualification Is the Starting Line for Sales
At the end of the SEC review process, the issuer seeks qualification of the offering statement. The SEC staff may declare the offering qualified through a notice of qualification. Only after qualification can the company begin selling securities under Regulation A.
There is also an important timing rule when a draft offering statement has been submitted to the SEC for non-public review. The initial draft, amendments, and related SEC correspondence must be publicly filed on EDGAR at least 21 calendar days before qualification. Once qualification occurs, the focus shifts.
The legal buildout has created the framework, but qualification itself does not raise the capital. The company still needs investor acquisition, education, follow-up, subscription processing, communications, and an overall marketing strategy capable of producing actual investors.
This is where a Regulation A offering succeeds or fails as a business strategy.
How Long Should You Expect Qualification to Take?
There is no universal timetable because every offering is different. A relatively straightforward real estate fund structure with organized financial records and an experienced team can move much differently than a complicated operating company, a novel structure, or an issuer that still needs substantial financial cleanup. Our planning generally contemplate roughly three to five months for a simpler real estate structure, while more complicated offerings may take five to six months. But those are planning ranges, not promises.
SEC review, audit timing, issuer responsiveness, structural changes, and the quality of the initial filing can all affect the schedule. One of the best things an issuer can do is begin preparing before there is an emergency need for the capital.
Regulation A is generally not the structure you choose because you need money thirty days from now. It is something you plan because you want to build a larger capital-raising platform over the next several years.
The Process Is More Work Because the Opportunity Is Bigger
It would be easy to look at Form 1-A, audited financial statements, SEC comments, EDGAR filings, and ongoing compliance and conclude that Regulation A is simply more complicated than Regulation D.
But that is only half of the analysis. The better question is what that additional work gives you access to. For the right issuer, Regulation A can provide public marketing, access to accredited and non-accredited investors, national reach, and under Tier 2 the ability to raise as much as $75 million during a 12-month period. It can become infrastructure for a business that expects capital raising to remain an important part of its growth for years.
If that is what you are trying to build, the SEC qualification process should not automatically discourage you. It should simply be understood and planned for.
At Dodson Legal Group, we help companies evaluate Regulation A, structure the offering, prepare the securities documents, and work through the qualification process. If you are considering a larger capital raise and want to determine whether Regulation A fits your plans, schedule a free attorney consultation with our team.
We can discuss what you are raising, who you want to reach, and whether Regulation A or another securities exemption is the best fit for where you want your business to go.