Call Us: (888) 606-0990

SYNDICATION LAW FIRM

SYNDICATION LAW FIRM

What is Regulation D?

What is Regulation D?

As Seen In

Media featuring Moschetti Law Group - Syndication Attorneys

What is Regulation D?

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, and companies can raise capital selling equities and debt securities.

What is Regulation D? Reg 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.

Rule 501 of SEC Regulation D – Accredited Investors and Beyond

Rule 501 of Regulation D is one of the most important since it defines numerous elements necessary for a Reg D offering. Most notably, it describes who can purchase your offering and under what conditions. The essential definitions of Rule 501 are:

  • Accredited investors
  • Aggregate offering price
  • Business combination
  • Calculation of number of purchasers
  • Purchaser representative

This rule describes all the terms mentioned above crucial for taking advantage of Reg D in detail. It also sets the criteria that need to be met and discusses potential exceptions for each definition. Other terms defined in Rule 501 are:

  • Executive officer
  • Final order
  • Issuer
  • Purchaser representative
  • Spousal equivalent

What are Rule 504 Securities of SEC Regulation D?

Rule 504 of Regulation D provides an exemption from registering securities with the SEC for particular companies that sell up to $10,000,000 of securities over 12 months.

Companies can take advantage of this rule as long as they aren’t blank check companies and don’t have to file reports under the Securities Exchange Act of 1934. Rule 504 doesn’t allow companies to solicit or advertise their securities unless they meet one of the following conditions:

  • The company registers the offering in at least one state that requires publicly filed registration statements and issues extensive disclosure paperwork to the investors.
  • The company registers (and sells) the offering in a state that requires publicly filled registration and in a state with no such requirements. In this case, the company needs to deliver the required disclosure paperwork to all purchasers (including those in the state without such requirements).
  • The company sells in compliance with a state’s law exemptions that allow solicitation and advertising. In this case, the company needs to sell only to accredited investors.
  • A company must give a private placement memorandum (PPM) to potential investors.

What is Rule 506(b) of SEC Regulation D?

Rule 506(b) of Regulation D describes a particular exemption from registering securities with the SEC. Companies that take advantage of this rule can raise unlimited amounts of money. Rule 506(b) is often called a “safe harbor” under Section 4(2) of the Securities Act of 1933.

This rule prescribes that:

  • A company can’t solicit or advertise securities on the market (unless it complies with Rule 506(c)).
  • A company can sell securities to an unlimited number of accredited investors and up to 35 other purchasers.
  • A company can decide what information to give to accredited investors but must not violate anti-fraud prohibitions.
  • A company must give a private placement memorandum (PPM) to potential investors.
  • A company must answer the potential purchasers’ questions.
  • Purchasers get “restricted” securities they can’t sell without registering for at least six months or one year.

What is Rule 506(c) of SEC Regulation D?

Until the JOBS Act of 2012, Rule 506(c) of Reg D didn’t exist. This new rule enables issuers to solicit and advertise their offerings and remain in compliance with the exemption requirements so long as they meet certain criteria:

  • All investors in the offering need to be accredited investors.
  • The company needs to verify and confirm the investors are accredited. This often includes checking W-2 Forms, tax returns, bank statements, etc.
  • A company should give a private placement memorandum (PPM) to potential investors.

Companies that comply with these criteria also don’t have to register their securities with the SEC, but they need to file Form D after selling their first securities.

Purchasers of securities under this rule receive “restricted” securities. This means they can’t sell them without registering for at least six months or a year.

Tilden Moschetti, Esq.

Tilden Moschetti, Esq.

Tilden is a Regulation D syndication attorney specializing in 506b and 506c private placement memorandums and offerings. He is a syndicator himself and General Counsel to 2 private equity firms.

Make informed decisions about your syndication.

Contact our syndication and private placement memorandum law firm today!

MOSCHETTI LAW GROUP, P.C.

SYNDICATION LAW FIRM

Calabasas Office
23901 Calabasas Rd, Ste 1069
Calabasas 91302
Phone: (888) 606-0990
Raleigh Office
8480 Honeycutt Rd, Ste 232
Raleigh 27615
Phone: (888) 606-0990

At Moschetti Law Group, our practice serves the needs of Founders by providing syndication attorney services to Founders. Whether you are the Founder of a real estate empire or building a business and need assistance with forming your syndication, understanding crowdfunding, private placement memorandums, and operating agreements.

Send Us A Message