Regulation D (Reg D)

Regulation D (Reg D)

Raising Private Placement Capital via SEC Reg D’s team can assist with the writing of your Reg D offering prospectus, offering memorandum or private placement memorandum.

Regulation D is the most utilized exemption from Securities Act registration in the United States when raising equity or debt capital.  Our team can help structure your Regulation D 504, 505 or 506 private placement offering, as well as 506b, 506c and many others.

When setting up a new business, the biggest challenge is usually raising capital at affordable rates to fund business operations and growth.  Sources of equity capital include business loans, SBA loans, venture capital, private placement and initial public offering (“IPO”).  The IPO is one of the most common means for established companies to raise capital by selling company stock shares.  Although quite commonly used, this strategy can turn out to be highly costly and complicated, and it may not work well for newer businesses until they are properly established.

Another alternative is a private placement investment.  Using this method, the company stock shares can be sold by the company to a selected investor group instead of the public.  There are many advantages of private placement sourcing when compared with various other methods pertaining to equity financing.  Moreover, the burden and pressures of regulatory requirements are also less with private placement, resulting in time and cost savings and the ability to continue operating as a private company.  When making use of private placement investment sources, proper knowledge about Regulation D, or Reg D, is a must.

Regulation D Facts

It is important to understand the Securities Act of 1933 when it comes to selling securities.  According to these regulations, most offerings must either be exempted or registered with the SEC.  There are three rules pertaining to Reg D that provide exemptions from the requirements of the registration, which allows several companies to make an offer or sell their securities without any need for securities registration with the SEC.  There are Rules 506, 505 and 504 of Regulation D which offer exemption from any registration with the SEC.

Rules and Exemptions

Reg D Rule 504

According to Reg D Rule 504, many companies can avail themselves of the registration requirement exemption.  This exemption can be used when offering or selling up to $1,000,000 ($1 million) of securities in any period within twelve (12) months.  Any company can make use of this exemption only if the company is not a blank check company.  Such companies need not file for any reports or registration filing under the Securities Act.  The exemption also states the fact that a company is not allowed to advertise or solicit securities to the public.

Reg D Rule 505

As per Reg D Rule 505, companies can also avail exemption from registration requirements as per Federal Securities law.  This exemption can be availed when offering or selling up to $5 million of their securities in any period within twelve months.

Reg D Rule 506

Similarly, as per Reg D Rule 506, companies can also avail exemption from registration requirements as per Federal Securities law.  This exemption can be availed when offering or selling unlimited amount of capital in any period within twelve months.  The exemption also states the fact that a company is not allowed to advertise or solicit securities to the public.

What is an accredited investor?

  • a bank, insurance company, registered investment company, business development company, or small business investment company;
    an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
    • a charitable organization, corporation or partnership with assets exceeding $5 million;
    • a director, executive officer, or general partner of the company selling the securities;
    • a business in which all the equity owners are accredited investors;
    • a natural person with a net worth of at least $1 million;
    • a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
    • a trust with assets of at least $5 million, not formed to acquire the securities offered, and whose purchases are directed by a sophisticated person.
    • and possibly more.

Accredited Investor Exemption – Section 4(6)

There are those that are exempt and if issuers of securities follow Section 4(6) of the Securities Act they would be exempt from registration the shares or notes (securities) if they were sold to accredited investors and if the overall offering price was under $5 million.

Our team structures many various of Reg D private placement offerings documents such as the PPM, private placement memorandum, offering memorandum or prospectus, including those geared for accredited investors.

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Regulation D (Reg D)