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Three Issues with Regulation A+ Tier One Offerings and Un-Audited Financials

We interact with many issuers each year that contemplate using Tier 1 Regulation A+ with the sole reason of avoiding the audited financials requirement of a Tier 2 Regulation A+ offering.  While we can see on the surface this may appear to be an advantage and potential cost savings for the issuer – the reality is using Tier 1 to avoid audited financials will probably not lower your offering preparation expenses and can hinder your capital syndication efforts.

Here are three reasons why the “advantage” of not being required to have audited financials and using Tier 1 Regulation A+ will probably hamper your fundraising efforts and probably cost more than the financial audit for a Tier 2 (which would then allow sales in all 50 States without qualification at the State level):

1.  The Cost Savings are a Mirage:

Tier 1 Regulation A+ does not require audited financials however it does require you to qualify the offering not only with the SEC but also with the State regulators in each State that you offer and sell securities. Many States, under the State level rules they will qualify your offering under, will require audited financials as part of the regulatory code and approval process.  Thus, in many cases you will be required to have audited financials anywaybecause there is a good chance the State rules where you offer and sell will require them.

Furthermore, the cost to pay a firm to qualify your Tier 1 in even a few States will probably exceed the original audit cost and that financial audit would have allowed use of Tier 2 Regulation A+ and 50 State sales after SEC qualification.

2.  The Real Benefit of Regulation A+ is Broad Market and Sales to All Investors:

The reason most companies opt for Regulation A+ is the ability to sell nationwide and to ALL investors, not just accredited investors.  By choosing Tier 1 Regulation A+ you will be limiting your offering to sales in only a handful of States and require additional work and effort to qualify in each State.

Tier 1’s State qualification requirement will nullify the largest benefit of a Regulation A+ offering – the ability to go nationwide and sell efficiently in all 50 States.

3.  Best Practice Policy Would Dictate Having Audited Financials

If you are raising funding from investors using a sophisticated offering such as a Regulation A+ – then best practice would dictate that you are executing audited financials anyway to protect the company, principals, and investors.  Furthermore, having audited financials will most certainly increase investor confidence and trust in the company both prior to and after investment.

Interested in executing a Regulation A+ offering?  Call us today to discuss – (720) 586-8610.

Author: admin

Monday April 19, 2021

Category: Capital Formation and Regulation D

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