Reg S vs online offerings: key issues

In the complex sphere of securities, the SEC’s Regulation S holds significant importance, but it is frequently misunderstood by many in the industry. Therefore, having a clear understanding about its role is essential for to be well-informed and avoid misconceptions.



We often hear suggestions that a Reg S offering be added to an offering being made under one of the online offering exemptions (Reg A, Reg CF or Rule 506(c) under Reg D). This is very rarely a good idea. Reg S sits very uneasily with the online exemptions. Although the conditions under which such offerings can be made using general solicitation vary, each of them can use general solicitation. Reg S offerings cannot.

Reg S requires that offers and sales be made in an “offshore transaction”, which means no offer can be made to a person in the United States and that you have to know or reasonably believe that any buyer of securities is physically located outside the United States. Additionally, “directed selling efforts” in the United States are prohibited.

Eye on compliance!

Directed selling efforts are much broader than general solicitation, including any activities that “condition the market” and would include not just advertising, but also person-to-person sales communications.

The type of communications permitted under the online offering exemptions would generally blow both the offshore transaction requirement and the directed selling effort prohibition. As we all know, the term “offer” is interpreted very broadly in US securities law.

If you are making an offering under multiple “exemptions”, even if you don’t mention the Reg S offering, the SEC is likely to take the view that general solicitation activities will result in conditioning the market for the Reg S offering. The Staff has certainly asked issuers making offerings under several exemptions contemporaneously for an “integration” analysis – explaining why various communications should not be treated as resulting in the several offerings being treated as essentially one plan of financing.

Efforts to argue to the Staff that one communication relates to one offering, and another communication relates to an offering under a different exemption have been met with a robust skepticism, and the Staff have often seemed to take the view that communications for multiple offerings cross-market each other. This would be even more the case if one of the offerings were being made under Reg S, where the “market conditioning” prohibition is baked into the rule.

Mentioning the Reg S offering in communications in the United States, would of course be a violation of the “no offers in the United States” requirement. But if you didn’t mention it, you would run the risk of omitting disclosure of a material fact.

Reg S and Online Offerings: think twice

Although its technically possible, is rarely adding a Reg S element to any offering being made under an online offering exemption. It’s reasonable consider that if you did want to add Reg S, you would need a geofenced offering site accessible only to persons outside the United States.

You need a separate set of offering docs (to comply with the other conditions of Reg S, which I haven’t even touched on here). And you would need to ensure that no-one who invested came to the offering because of all the communications you used in the other offerings – the LinkedIn ads, the TikTok videos, the Insta pics, the You Tube videos. And that’s a difficult task.

And bear in mind that even if you were to structure an offering to meet the requirements of Reg S, you would still need to consider compliance with the securities laws of the countries your investors are from, as you would with any of the other “exemptions”.

In most cases, from a practical point of view, you are better off relying on the usual online offering exemptions, even to accommodate non-US investors.


* Credits: Sara Hanks, CrowdCheck.

What are the Differences Between Regulations A, CF, D, and S?

When it comes to raising capital, there are various ways you can raise money from investors. And while they all have their own specific compliance requirements, they all share one common goal: to protect investors while still providing them with opportunities to invest in private companies. Let’s look at the four most popular types of equity crowdfunding; through Regulation A, CF, D, or S. 


Regulation A+


Offering size per year: Up to $75 million

Number of investors allowed: Unlimited, as long as the issuer meets certain conditions.

Type of investor allowed: Both accredited and non-accredited investors.

SEC qualification required: Reg A+ offerings must be qualified by the SEC and certain state securities regulators and must also file a “Form 1-A”. Audited financials are required for Tier II offerings.


This type of crowdfunding is popular because it allows companies to raise up to $75 million per year in capital and is open to accredited and non-accredited investors. Offering the ability to turn current customers into investors and brand ambassadors (like several JOBS Act regulations promote) can bring a company tremendous value and help to grow the business. A Reg A raise is excellent for companies that have a wide customer base or need to raise a large amount of capital. Compared to other regulations, Reg A+ is a bit more complex and time-consuming to implement. Yet, it still offers a great deal of potential with the ability to market the offering to a wide pool of potential investors.


Regulation CF


Offering size per year: $5 million

Number of investors allowed: Unlimited, as long as the issuer meets certain conditions.

Type of investor allowed: Both accredited and non-accredited investors

SEC qualification required: The offering must be conducted on either an SEC-registered crowdfunding platform or through a registered broker-dealer. Audited financials are required for companies looking to raise more than $1,235,000. Companies must fill out a “Form C.”


Compared to other regulations, Reg CF is one of the most popular due to its lower cost and ease of implementation. Regulation CF offers companies the ability to raise up to $5 million per year and allows accredited and non-accredited investors to invest in the company. Companies that need a smaller sum of capital while still leveraging the power of marketing can benefit from utilizing this type of regulation. 


Regulation D


Offering size per year: Unlimited

Number of investors allowed: 2000

Type of investor allowed: Primarily accredited investors, with non-accredited investors only allowed for 506(b) offerings.

SEC qualification required: Reg D offerings do not need to be registered with the SEC but must still meet certain filing and disclosure requirements.


A Reg D offering must follow either Rule 506(b) or 506(c). Both allow up to 2000 investors but differ slightly in that 506(b) offerings allow up to 35 non-accredited investors. Additionally, 506(b) offerings do not permit general solicitation. This means that companies will have to rely on their own network of investors to reach their goals. While this type of offering is more restrictive than others, it can be attractive to companies that need a smaller sum of capital and have access to a network of accredited investors. 


Regulation S


Offering size per year: Unlimited

Number of investors allowed: 2000

Type of investor allowed: Foreign (non-US) accredited and non-accredited investors

SEC approval/qualification required: Reg S offerings are not subject to SEC rules, but they must follow the securities laws in the countries issuers seek investors from.


An excellent complement to Reg D, Reg S allows companies to raise capital from foreign and non-U.S. investors. This regulation was made for big deals, allowing companies to reach a larger and more diverse pool of investors. Reg S is great for companies looking to raise a large amount of capital or to break into foreign markets. Issuers must be careful not to make the terms of the offerings available to US-based people.


Depending on the size of your offering, the number of investors you’re looking to attract, and the type of investor you want, one regulation may be better suited for your needs than another. Still, it is important to consult with a professional when making these decisions to ensure that you meet all necessary compliance requirements.

Misconceptions About Regulation S

Continuing our last post on Regulation S, then are still a few things that should be known to issuers looking to explore this method of raising capital. Perhaps most importantly, “nobody in the US should be able to know that you are doing a Reg S offering,” said Sara Hanks, CEO and co-founder of CrowdCheck. This means that issuers should geofence any offering site, preventing people with US IP addresses from accessing the offering and viewing its terms. Unlike the other JOBS Act exemptions that permit general solicitation in the US, Reg S does not. 


Why Do Companies Use Reg S?


Despite the challenges of raising money under Regulation S, many companies still find it the best option for them. This is because the rules offer several benefits that can be very helpful for businesses. One of the biggest advantages is that it enables issuers to raise money from foreign investors. It also does not limit issuers to how much they can raise, unlike Reg A+ or RegCF.


What Are the Drawbacks of Using Reg S?


Despite the many advantages that come with using Regulation S, there are also several risks that businesses need to be aware of. One of the biggest dangers is that companies can inadvertently violate the rules if they are not careful. This can lead to significant penalties, including fines and other penalties. As a result, businesses need to make sure they understand all of the requirements before they begin raising money under Regulation S. Another risk is that companies may have difficulty finding investors who are willing to invest in their business. This is because the pool of potential investors is much smaller than it is for other types of securities offerings. As a result, companies may need to offer more attractive terms to entice potential investors. 


Those are not the only factors that would be a challenge for potential Reg S issuers. “The only reason to add Reg S is if you think you are going to exceed the $75 million [limit for Reg A+] and you think there are people overseas who would be interested in investing. We rarely see the $75 million exceeded. But the problem is Reg S only tells you how to comply with US rules, it does not tell you how to comply with anybody else’s rules. Most developed countries have rules that limit the extent you can offer securities to less sophisticated people. Reg S tells you how to comply with US rules but it doesn’t tell you how to comply with French or German rules so you would still have to learn those rules in whatever country you are making the offering in,” said Hanks.


Did Reg A+ Replace Reg S?


While some people may think otherwise, Regulation A+ did not replace Regulation S. Regulation A+ is an alternative securities offering process that was expanded by the JOBS Act of 2012. Unlike Regulation S, which only allows companies to raise money from foreign investors, Regulation A+ allows businesses to raise money from both foreign and domestic investors. Additionally, Regulation A+ has many requirements that are not imposed on Regulation S offerings. For example, companies that use Regulation A+ must file a disclosure statement with the SEC and provide ongoing reporting after their offering. Additionally, only companies that are qualified by the SEC can use Regulation A+. As a result, Regulation A+ is generally considered a more complex process than Regulation S in terms of compliance. However, companies that use Reg A+ can raise capital from a large number of accredited and nonaccredited investors within the US and market the offering to them, which enhances the visibility of that offering.