Regulation D (Reg D)

Regulation D (Reg D)

Raising Private Placement Capital: Reg D

The team at Prospectus LLC can help in the drafting of a Regulation D offering document. This can be in the form of an offering memorandum, a prospectus, or a PPM.

In the United States, offering documentation written under Regulation D is the most widely utilized way for a company to issue securities. Our team can help with any step in the process of forming a Reg D prospectus, whether that be Reg D 504, 505, 506 and many others.

When a new company is formed, quite possibly the biggest challenge is obtaining funding at decent interest rates to aid in company growth and expansion of operations. Capital can come from many different sources such as loans, venture capital firms, IPOs and private placements. The initial public offering (IPO) is a widely practiced manner of raising capital for big companies that have already established themselves in their relevant markets. However, IPOs are often costly, and it most likely would not be an appropriate route for smaller companies to take.

A more proper route for raising capital is a private placement investment. This method of obtaining funds allows specific investors to buy company shares instead of the wider public. Private placement is often advantageous compared to other methods of raising capital, especially for smaller businesses. In addition, the SEC requirements and laws are not as strict for private placements, which allows for the saving of time and resources. When a company wishes to conduct a private offering, they must know about Regulation D and comply with its requirements.

Regulation D Facts

When it comes to the issuance of securities, the Securities Act of 1933 must be understood. The regulations that accompany this act require that company offerings must be conducted under certain exemptions, or they must be registered with the Securities and Exchange Commission (SEC). Regulation D has three requirements, that if complied with, allows a company to issue securities without registration. These are Rules 504, 505, and 506 of Reg D, and they must be followed if a company wants to issue unregistered securities.

Regulation D Rules and Exemptions

Reg D Rule 504

According to Reg D Rule 504, many companies can avail themselves of registration requirement exemption according to federal securities laws. 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.

Prospectus LLC has created and structured many Regulation D offering documents such as PPMs, prospectuses, and offering memorandums. We have extensive experience, and we can assist you in creating a Reg D offering document that is properly structured and attractive to investors. Please contact us for a free consultation!

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Regulation D (Reg D)

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