Choosing between Tier 1 and Tier 2 of Regulation A+ (Reg A+) is usually a trade-off between upfront audit costs and ongoing compliance headaches. While Tier 2 has stricter reporting, it is often the preferred choice because it bypasses state-by-state legal reviews.
Here is the breakdown of the record-keeping and reporting requirements for each.
Comparison: Tier 1 vs. Tier 2
| Feature | Tier 1 (Up to $20M) | Tier 2 (Up to $75M) |
|---|---|---|
| Financial Audits | Not Required (unless you already have them for other reasons). | Required. Two years of audited financials (GAAP/PCAOB) must be in the filing. |
| State “Blue Sky” Laws | Must comply with every state where you sell shares. High legal fees and paperwork. | Preempted. You generally don’t need state-level approval (huge advantage). |
| Ongoing Reporting | Only an Exit Report (Form 1-Z) within 30 days of finishing the raise. | Ongoing. Annual (1-K), Semi-Annual (1-SA), and Current Event (1-U) reports. |
| Investment Limits | No limits on how much an individual can invest. | Non-accredited investors are limited to 10% of their income/net worth. |
| Transfer Agent | Recommended, but optional. | Conditionally Required to stay exempt from full SEC “public company” registration. |
Why Tier 2 usually “wins”
Even though Tier 2 requires a CPA audit and ongoing reports, most companies choose it for one reason: State Preemption.
- In Tier 1, you have to “qualify” your offering in every single state where your investors live. If you have investors in 50 states, you have 50 different regulators to satisfy.
- In Tier 2, the SEC review covers you federally, and you just pay a small notification fee to the states.
Regarding the “Paying Records”
- Tier 1: Since you have fewer reporting requirements, you could theoretically manage records yourself or with a CPA’s help, but state regulators often want to see a very clean trail of where the money came from.
- Tier 2: Because of the ongoing reporting (Form 1-K and 1-SA), the SEC essentially expects you to have a professional Transfer Agent and/or Portal in place. It is nearly impossible to accurately file these forms manually if you have thousands of retail investors.
Key Takeaway for your CPA
Your CPA will be much more involved in Tier 2. They don’t just do the initial audit; they will likely need to perform a “review” or “audit” of your financials every year for as long as you are a reporting company.