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Regulation D Private Placements

By: Tilden Moschetti, Esq.

Regulation D (aka Reg D) is a Securities and Exchange Commission (SEC) regulation comprised of various rules related to private placement exemptions. It enables certain companies to raise capital without registering the securities with the SEC. A private placement memorandum is prepared and delivered with other syndication documents to the investors. Within 15 days after the first securities are sold, the entrepreneur or the company needs to file a Form D with the SEC. All Form D information (company’s name, address, directors, offering size, etc.) is publicly available.

This regulation’s benefits are available only to the issuer of the securities, not the affiliates or individuals that may try to resell them. Moreover, the exemptions apply only to the transactions, not the actual securities.

What is Regulation D?

Before diving in, we need to answer – ‘what is Regulation D?‘ Reg D contains a set of rules that allow an entrepreneur or a company to sell securities without registering with the SEC. It’s intended to help small companies that otherwise couldn’t bear the costs of a standard SEC registration gain access to the capital market. Thanks to this regulation, introduced in 1982, companies can raise capital selling equities and debt securities.

Regulation D defines essential terms, conditions that need to be met, and potential exemptions for certain offerings. Companies that meet all requirements don’t have to register their offering of securities, but they do need to file Form D with the SEC. This needs to be done no later than 15 days after the first securities are sold.

Reg D and the SEC

The Securities Act of 1933 states that every offer to sell securities needs to be registered with the United States Securities and Exchange Commission (SEC). However, there are certain exceptions. If an offer meets specific criteria, it’s eligible for an exemption from such registration. The SEC’s Regulation D is one such exemption to registration.

Regulation D contains the rules a company or an entrepreneur needs to follow to qualify for the exemption. It defines the conditions one needs to meet, forms that need to be filed, and guidelines under which the SEC enforces the regulation. SEC Regulation D is not to be confused with the Federal Reserve Board Regulation D that sets definite limits for withdrawals from savings accounts.

Blue Sky Laws

Blue sky laws represent safety regulations for protecting investors from securities fraud. These laws vary depending on the state and require issuers of securities to register in their own state and states in which they intend to conduct business. Sellers are obliged to provide financial details of every deal they make, including information about involved entities. Hence, the investors have all the data necessary to make informed decisions.

Essentially, blue sky laws serve to prevent sellers from taking advantage of investors who lack experience and knowledge. That being said, there are several exceptions for offerings that don’t have to be registered. These are securities listed on national stock exchanges and those that comply with Rule 506 of Regulation D.

Reg D Offerings

Regulation D offerings are the security, put together by the Sponsor, and sold to investors. These can be real estate, equity or debt in a business (like a venture capital or shares in a single business), or a private equity fund that invests into any number of assets including digital assets, mineral rights, or tax credits.

What Industries Raise Capital With Regulation D?

Regulation D is an effective tool to raise capital for nearly any business that wants to:

  • Raise capital from investors,
  • Be in control of the entity, business, or asset (as opposed to having the investors all sharing control), and
  • Not go through the time and expense of registering a security with the SEC.

While the most common industry for a Regulation D offering is probably for real estate assets and developments, syndicators also use it to raise money for new and established businesses who are looking for cheaper capital, crypto-mining, blockchain businesses, private equity funds, and hedge funds.

Make informed decisions about your syndication.

Contact our syndication and private placement memorandum law firm today!