Reg D vs Reg A: How Private Companies Raise Capital

The short answer

Regulation D lets a company raise an unlimited amount privately, mostly from accredited investors, with light SEC filing. Regulation A lets a company raise from the general public, up to $20 million a year under Tier 1 or $75 million under Tier 2, in exchange for an SEC-qualified offering statement and more disclosure.

Rule 506(b): the traditional private placement

No limit on the amount raised. The company may not use general solicitation or advertising. It can sell to any number of accredited investors and up to 35 non-accredited investors who are financially sophisticated, though selling to non-accredited investors brings disclosure requirements. A short Form D notice is filed with the SEC.

Rule 506(c): private placement with advertising

Also no limit on the amount. The company may advertise and solicit broadly, but every purchaser must be accredited, and the company must take reasonable steps to verify it, such as reviewing tax returns or getting a letter from a CPA or attorney.

Regulation A: raising from the public

Often called a mini-IPO. Tier 1 allows up to $20 million in a 12-month period, with review by the states where the offering is sold. Tier 2 allows up to $75 million in a 12-month period, requires audited financial statements and ongoing reports to the SEC, and preempts state registration. Non-accredited investors in a Tier 2 offering of non-listed securities are generally limited to investing 10% of the greater of their annual income or net worth.

Who counts as an accredited investor

For individuals, the SEC’s tests include income over $200,000 (or $300,000 with a spouse or partner) in each of the last two years with the same expected this year, net worth over $1 million excluding the primary residence, or holding certain securities licenses such as Series 7, 65 or 82.

How companies usually choose

Count the investors you already know. If they are accredited and you do not need to advertise, 506(b) is often the simplest path.
If you need to market the raise publicly to accredited investors, look at 506(c).
If your customers or community want to invest and many are not accredited, Reg A may fit, at the cost of more preparation and ongoing reporting.
Budget for counsel, audit and compliance before choosing, not after.

Reg D and Reg A side by side

Reg D and Reg A side by side
	Rule 506(b)	Rule 506(c)	Reg A Tier 1	Reg A Tier 2
Maximum raise	No limit	No limit	$20M per 12 months	$75M per 12 months
Advertising	No	Yes	Yes	Yes
Non-accredited investors	Up to 35, sophisticated	No	Yes	Yes, with investment limits
SEC filing	Form D notice	Form D notice	Offering statement, qualified	Offering statement, qualified
Audited financials	Depends on investors	No	No	Yes
Ongoing reporting	No	No	Exit report only	Annual and semiannual

Questions owners ask

Can I post about my Reg D raise on LinkedIn?

Only under Rule 506(c), where every purchaser must be a verified accredited investor. Under 506(b), public posting can count as general solicitation and put the exemption at risk.

Does Reg A make my company public?

Not by itself. Reg A securities can be sold to the public, and Tier 2 companies report to the SEC, but a listing on a national exchange is a separate step with its own requirements.

Sources

This guide is general information, not legal, tax or investment advice for your situation, and it may not reflect changes in the law after the date above. Talk to a qualified professional before acting on it.

Reg D vs Reg A: how private companies raise capital.