The Securities and Exchange Commission’s Regulation “A+” has been hailed as an exciting way for emerging companies to reach a different group of private investors and raise considerable funds without an initial public offering. But does Reg A+ really deserve high marks?

Mandated by the 2012 Jumpstart Our Business Startups Act (JOBS), Regulation A+ looks at first blush like a big boost for cash-hungry young firms. And with higher ceilings, fewer trading restrictions and a larger pool of backers to choose from, what’s not to love?

But Reg A+ is no panacea – its benefits come with more work, more expense and a steeper regulatory burden.

The rule has two tiers. Tier 1 allows companies to raise as much as $20 million, up from the prior $5 million cap, but only after qualifying under “blue sky” laws in every state the securities are to be sold. This is no slam-dunk, as Massachusetts investors learned in 1980 when they were left at the launching pad of a skyrocketing stock offering after Massachusetts regulators ruled Apple’s IPO was too risky to permit the sale of shares to non-exempted state residents.

Tier 2 allows firms to raise up to $50 million without state-level review, but is even more cumbersome. There are auditing and SEC reporting and filing requirements, which while slightly less onerous than traditional IPO requirements, are much more burdensome, time-consuming and costly than other hands-off exemptions companies enjoy when selling exclusively to “accredited investors.” If investing the time and expense, some companies may decide to pursue a traditional IPO or alternatively may avoid delays and costly burdens if they find they can reach their capital raising goals without reaching out to non-accredited investors.

While Reg A+ allows sales of securities to non-accredited investors, the added layer of filing requirements is onerous. Under another existing exemption (Regulation D) when companies sell securities only to accredited investors, a short notice filing with some limited information about the offering is required to be filed with the SEC and the level of information provided to investors is up to the particular company selling the securities. Yet with Reg A+ there are state reviews for Tier 1 or audited financials and ongoing reports to be filed for Tier 2, among other hurdles to clear. Though securities issued in a Regulation D private placement are not immediately unrestricted for trading as they would be in a Reg. A+ offering, Regulation D offerings come with no dollar limits and no ongoing SEC compliance obligations. If a company can find accredited investors to reach its solicitation goals under Regulation D, the financial and reporting requirement of Reg A+ will seem unduly burdensome by comparison. If a company hasn’t consulted with a broker, it may be unaware of what is available to them.

Worth The Time And Effort?

Despite the investor protections the SEC has built into Tier 2 Reg A+ offerings through filing and reporting obligations, Reg A+ remains controversial with some state regulators who believe the SEC is acting against public policy by pre-empting long-standing state prerogatives to review this type of securities offering. For example, Massachusetts Secretary of State William Galvin recently cast himself as the champion of small investors (ala former crusading New York Attorney General Elliot Spitzer) when he petitioned the federal appeals court to set aside the unanimously adopted SEC regulation, and the states of Montana and Washington filed similar objections.

For companies willing to put in the time and effort to prepare the financial statements and engage in ongoing reporting, Reg A+ represents a promising new avenue to reach the masses. Nonetheless, some companies that want liquidity for their shareholders and to be viewed as successful may still choose to seek the prestige and greater potential of a true IPO.

Regulation A+ has generated a lot of excitement since it was adopted by the SEC in March. But it’s an alluring process that may require a larger compliance commitment from young companies than they are ready to take on. Before they rush forward, they should explore whether it is worth the time and effort to achieve their goals.

Howard E. Berkenblit is a partner and leader of the Capital Markets Group of the law firm of Sullivan & Worcester LLP, based in Boston.