Reg A vs Reg D vs Reg S: What's The Difference?

Typically, a public sale of a security must be registered with the SEC; Unless the security listing meets an exemption. Getting exempt from SEC registration offers different advantages over companies that must file with the SEC, the most notable advantages are time and money saved.

However, these regulations can provide other limiting factors that can cap the amount of money that is allowed to be raised, as well as offshore a company, or require background information on employees. When a company is exploring the option to go through SEC registration or not, it is important they understand their different alternatives.

Three key exemptions to understand are Reg A, Reg D and Reg S. All three of these regulations offer routes out of the typical SEC registration process. Few platforms today provide all options. INX is a notable platform that is exploring these different regulation options.

What is Reg A?

Regulation A is a type of exemption from the typical security regulations process with the SEC. At a high level, regulation A puts a cap on how much money can be raised in a 12-month span. 

The more compliance with the SEC results in the ability to raise more money. With this in place, if there is foul play, less damage can be done. Also, companies are typically more incentivized to undergo more strenuous exams – as long as they have the patience, money and clean record.

Under regulation A there is tier 1 and tier 2, both follow similar basic requirements including: company eligibility requirements, disclosure, bad actor disqualifications provisions and a few others.

Tier 1:

This tier is designed for offerings that will raise no more than $20 million in the first 12 months. The requirements above all apply to this tier.

Tier 2:

More can be raised for tier 2, up to $75 million in the first 12 months. All requirements above apply to tier 2, as well as some additional, including a cap on non-accredited investment, audited financial statements and ongoing report filings.

What is Reg D?

Regulation D is another exemption from the timely and costly filing with the SEC. A key requirement of Regulation D is filling out “Form D,” an electronic form that provides background information on all investors, executives and employees. Included in this information should be all history of bad actors in the company.

Important to note is even when getting exempt from SEC filing; these companies must still follow basic security laws. So, companies must be sure to provide clear and accurate statements about the company to avoid any investor fraud.

What is Reg S?

Perhaps the most extreme of the three exemptions is regulation S. Under this provision, one is able to file a public offering for their company as an entity that is technically outside of the US domain. This requires investment to come from outside of the US, and for the information to be kept private from US-based investors.

There are other regulations that can be mixed and matched with the ones displayed above. But, the more money a company raises, the harder it can be to find exemptions.

Takeaway

In conclusion, there are some nuanced paths to get out of an SEC filing for public offerings. This can save companies time and money, but also requires a great deal of research and creativity. Filing with one of the different regulations can provide new requirements that hamper the growth of a company, so it is often better to simply go through the SEC filing process.

Image sourced from Unsplash 

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