Broker-Dealers: What Reg A Issuers Should Know

Regulation A, Tier 2 offerings provide a means for issuers to raise up to $75 million in capital annually without the regulatory hurdles of a full registration process with the U.S. Securities and Exchange Commission (SEC). Issuers can sell their own securities in most U.S. states, but New Jersey, Washington and Texas require issuers to register as dealers if they do not engage a broker-dealer to facilitate Regulation A, Tier 2 offerings.

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While the Regulation A, Tier 2 fundraising process is more streamlined than a traditional IPO, it still requires compliance with certain disclosure requirements. The SEC requires an offering statement on Form 1-A. In addition to this and other well-known federal requirements, issuers must also comply with lesser-known state securities laws, commonly referred to as blue sky laws.
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States are preempted from requiring registration or qualification of offerings, which leads many issuers to mistakenly believe that blue sky laws can be disregarded entirely. However, many states can and do impose filing and fee requirements on issuers, as well as investigate fraud. States’ blue sky laws impose additional requirements and restrictions on the offer and sale of securities, meaning that Regulation A, Tier 2 issuers must be mindful of both state and federal regulations.
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Failure to meet all requirements can result in fines, delays or halted fundraising efforts, while late or incomplete filings can jeopardize your offering and cause unnecessary disruptions.
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Key Compliance Facts
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Although broker-dealers are well-versed in both federal and state regulatory requirements, when contemplating Regulation A offerings as a fundraising method, issuers should focus on the following to manage risk:
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1. Broker-Dealers Are Required to Facilitate Regulation A, Tier 2 Offerings in Select States
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For Tier 2 offerings in New Jersey, Washington and Texas, issuers are required to register as issuer dealers/agents if they don’t want to appoint a broker-dealer. Across the board, however, brokers play a critical role in managing the offering, ensuring the sale of securities is compliant and aiding in the distribution of shares to accredited investors. Broker-dealers help with due diligence, marketing to their extensive networks and verifying investor qualifications. Their involvement ensures the offering is conducted in compliance with SEC regulations and helps reduce the risk of violations related to anti-fraud provisions and investor suitability. Engaging a trusted legal and compliance partner with expertise in Regulation A, Tier 2 offerings can also ensure compliance considerations are not overlooked.
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2. Blue Sky Laws Vary from State-to-State
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In Regulation A, Tier 2 offerings, the most notable state requirement is a notice filing. While some states mandate a notice filing, there are variations in the timing, filing fee amount, issuer-dealer requirements and method of filing from state to state. The complexity and variation of blue sky laws across states can be confusing for businesses attempting to navigate the legal requirements for Regulation A, Tier 2 offerings.
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Some states may require issuers to file a notice of the offering and pay a filing fee, while others might also impose additional conditions or require additional documents. Issuers must carefully review the specific blue sky laws in each state where they plan to solicit investors and file accordingly to ensure compliance. The following states currently do not require notice filings: Alabama, Alaska, Arizona, Connecticut, Florida, Georgia, Hawaii, Kansas, Minnesota, Nevada, New Jersey, North Carolina and West Virginia. (Click here to view a map of states with/without required notice filings.)
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Broker-dealers are generally involved in compliance with state notice requirements and often work with legal and compliance advisors to stay on top of the latest amendments by state.  
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3. Issuers Must Meet Post-Offering Compliance Requirements
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Once the offering is completed, issuers are still required to comply with various ongoing regulatory requirements. This may include annual updates to the SEC, maintaining records of the offering’s progress, or subsequent state notice filings in certain conditions. Issuers are also required to file annual reports with the SEC, keep investors informed of material events, and ensure that the securities remain in compliance with all applicable state and federal laws. Additionally, broker-dealers and trusted legal advisors often play a key role in ensuring that these post-offering compliance requirements are met.
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How Agile Legal Helps
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Raising capital through Regulation A, Tier 2 offerings requires careful navigation of complex state and federal securities laws. Operating without a proper agent for service of process increases the risk of fines, delays, regulatory scrutiny, audits, missed legal notices, compliance failures and other missteps.
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Whether assisting with blue sky compliance, SEC filings, ongoing sales compliance or renewal notice filings, Agile Legal provides legal project management and securities and corporate compliance services to keep you compliant with various regulatory requirements, so that mitigating your risk does not impede your fundraising goals.

Agile Legal helps issuers and broker-dealers stay compliant at every stage of the fundraising process—from blue sky filings to ongoing reporting. Don’t let regulatory hurdles derail your capital raise. Contact us to learn how we can support your next offering.