In a Tier 1 offering, the rules are significantly more relaxed at the federal (SEC) level, but they become much more complex at the state level.
If you choose Tier 1, you are essentially trading a “one-and-done” federal process for a state-by-state approval process. Here are the specific requirements:
1. Financial Statements (The CPA’s Role)
- No Audit Required: Unlike Tier 2, the SEC does not require your financial statements to be audited by a CPA for a Tier 1 filing.
- Standard: You only need to provide balance sheets and related statements for the last two fiscal years (or since inception).
- The Exception: If you have already had an audit performed for other reasons (e.g., for a bank loan or internal investors), the SEC requires you to include that audited version in your filing.
2. State “Blue Sky” Laws (The Big Hurdle)
This is the defining feature of Tier 1. You do not get “federal preemption,” which means:
- State-by-State Review: You must register or qualify your offering in every single state where you plan to sell shares.
- Merit Review: Some states practice “merit review,” where a state regulator can decide if your deal is “fair, just, and equitable.” They can block your offering even if your paperwork is technically perfect.
- NASAA Coordinated Review: Most companies use the “Coordinated Review” program to streamline this, allowing you to deal with one lead state regulator rather than 50 separate ones.
3. Investor Limits
- None: There are no income or net worth limits for investors in a Tier 1 offering. Anyone can invest any amount (subject to the $20 million total cap). This is a major advantage over Tier 2, where non-accredited investors are capped at 10% of their income/net worth.
4. Ongoing Reporting
- The Exit Report (Form 1-Z): Once your offering is finished, your reporting duties to the SEC are essentially over. You must file Form 1-Z within 30 days of the offering’s termination to report how much you raised and the expenses involved.
- No Annual Reports: You do not have to file annual audited reports (1-K) or semi-annual reports (1-SA) with the SEC, which saves significant long-term CPA and legal fees.
Summary Table: Tier 1 Requirements
| Requirement | Rule for Tier 1 |
|---|---|
| Max Raise | $20 Million per 12-month period. |
| Audit | Not Required (unless already existing). |
| SEC Filing | Form 1-A (must be “qualified” by SEC). |
| State Laws | Full compliance required in every state of sale. |
| Investor Limits | None (Public can invest any amount). |
| Ongoing Reports | Only Form 1-Z (Exit Report). |