Is the fundraising amount the deciding factor?
The amount is the first filter. Regulation A Tier 1 allows up to $20 million and Tier 2 up to $75 million in a 12-month period. For an offering of $20 million or less, an eligible company can choose either tier. SEC Regulation A overview.
That choice affects much more than your ceiling. It determines how you approach state regulators, what financial preparation you need, and which reporting obligations continue after qualification. A smaller offering is not automatically a Tier 1 offering.
Both tiers involve SEC qualification before sales. Neither turns the securities into an exchange-listed investment by itself.
What changes between the tiers?
| Issue | Tier 1 | Tier 2 |
|---|---|---|
| Offering ceiling | $20 million in a 12-month period | $75 million in a 12-month period |
| Financial statements | Audits generally not required unless already prepared for other purposes | Audited financial statements required |
| State qualification | State registration or qualification generally applies where offered or sold | State registration and qualification preempted |
| Ongoing Regulation A reports | Offering exit report | Annual, semiannual, and specified current reports |
| Non-accredited investor cap under Regulation A | No Tier 2-style federal cap | A limit generally applies unless the securities will be exchange-listed upon qualification |
The SEC’s issuer guidance explains these differences. States retain antifraud authority, and Tier 2 issuers may still owe state notices and filing fees. Preemption does not mean there is no state work.
How do financial statements change the preparation?
Both tiers require financial statements in the offering statement. The financial history generally covers the two previous fiscal years, or the shorter period the company has existed. Tier 1’s lighter audit requirement does not remove the obligation to prepare usable financial information. Form 1-A, Part F/S.
An issuer choosing Tier 2 needs an independent audit and a plan for future audited annual statements. Your accounting records, historical transactions, and availability of supporting documents affect that work. An audit cannot be scheduled responsibly around a website launch date without involving the accountant.
Compare the whole period you expect to maintain the offering and its reporting obligations. A preparation budget that pays for the first audit but leaves no budget for the next one misses a continuing cost. The Regulation A reporting guide explains the responsibilities that continue after fundraising.
How does the Tier 2 investor limit work?
For a non-accredited individual, the Tier 2 purchase limit is generally 10% of the greater of annual income or net worth. Net worth follows the applicable Rule 501 calculation, including the primary residence exclusion. For a non-accredited entity, the comparison uses annual revenue or net assets at its most recent fiscal year end. The restriction does not apply to accredited investors or securities that will be listed on a registered national securities exchange upon qualification. The rule also addresses the cost of underlying convertible or exercisable securities. Rule 251(d)(2).
Hypothetical example: an individual has $80,000 in annual income and $300,000 in net worth calculated under the applicable rules. Assume the individual is not accredited and the exchange-listing exception does not apply. The greater figure is $300,000, so 10% is $30,000. A $40,000 purchase would exceed that limit.
The issuer may rely on a purchaser’s representation unless it knows the representation is untrue. This is a different requirement from Rule 506(c)’s reasonable verification of accredited status. Ask counsel to define the questions and exceptions for your investor journey rather than reuse an accreditation process without review.
When might each tier deserve closer consideration?
Consider a fictional manufacturer seeking $8 million from investors concentrated in two states. Tier 1 deserves an evaluation of those states’ requirements alongside the company’s financial preparation. If the same company plans a national campaign, the balance may change because its proposed audience reaches many more jurisdictions.
Neither scenario establishes a universal cheaper route. State review work, audit readiness, the expected duration of the raise, and the ability to maintain reporting all affect the answer. Ask your providers for a scoped comparison tied to the states and investors you actually expect.
If existing shareholders also plan to sell, have counsel model those sales separately. Affiliate resale caps and first-year limits on selling-securityholder participation can reduce what fits within an otherwise available ceiling. Rule 251(a).
How Issuance fits
Your tier decision comes before the investor experience is configured. Issuance provides offering technology, investor checkout, electronic signatures, dashboard visibility, and data exports. Discuss your proposed tier and provider responsibilities when reviewing the technology scope.
The platform does not replace an audit, a state qualification analysis, or SEC qualification. A useful demo starts with your audience, the proposed security, and the work your team needs to manage throughout the offering.