Legal Definitions - Regulation A

Regulation A is a rule issued by the U.S. Securities and Exchange Commission (SEC) that provides a simplified way for smaller companies to raise capital by selling stock to the public. It allows eligible businesses to offer and sell up to a certain amount of securities (currently $75 million, though the source definition refers to an older limit of $5 million, which was updated in 2015) to both accredited and non-accredited investors, without having to go through the full, complex, and costly registration process typically required for larger public offerings. This exemption makes it easier and more affordable for smaller entities to access funding from a broader range of investors.

Here are some examples of how Regulation A might apply:

• Example 1: A Tech Startup Seeking Seed Funding

  Imagine "InnovateTech," a new software company, has developed a promising mobile application and needs to raise $2.5 million to hire more engineers and market its product. Instead of pursuing a traditional, costly initial public offering (IPO) that involves extensive SEC filings, InnovateTech decides to use Regulation A. This allows them to offer shares to both individual and institutional investors with a simplified disclosure process, making it quicker and more affordable to secure the necessary funding.

  How it illustrates the term: InnovateTech's offering is below the monetary cap for Regulation A, and by using it, they are exempt from the more burdensome registration requirements that a larger public offering would entail, thus streamlining their capital-raising efforts.

• Example 2: An Established Small Business Expanding Operations

  "GreenEnergy Solutions," a small company specializing in solar panel installation for homes, wants to expand its operations into three new states. To fund this expansion, they aim to raise $4.8 million by selling ownership shares. Given their funding goal is within the Regulation A limit, GreenEnergy Solutions opts for this pathway. This enables them to reach a wider pool of potential investors, including their existing satisfied customers and community members, without the prohibitive costs and complexities associated with a full SEC registration.

  How it illustrates the term: GreenEnergy Solutions utilizes Regulation A to raise capital within the specified limit, benefiting from the exemption from full SEC registration requirements, which facilitates their expansion plans by making it easier to attract investors.

• Example 3: A Craft Brewery Funding a New Facility

  A popular craft brewery, "Hop & Grain Co.," has a loyal customer base and wants to build a larger production facility, requiring $3.5 million in capital. Rather than seeking a bank loan or private equity, they decide to offer shares directly to their community and other interested investors. By conducting a Regulation A offering, Hop & Grain Co. can publicly solicit investments up to the allowed threshold with a less intensive regulatory burden than a full public offering, allowing their customers to become part-owners and fund their growth.

  How it illustrates the term: Hop & Grain Co. leverages Regulation A to raise capital within the allowed limit, taking advantage of the exemption from the extensive registration process, which helps them fund their expansion by engaging their community as investors.