Regulation D Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (Reg. D) contains two rules, Rule 504 and Rule 506, that provide an exemption from the registration requirements for Reg. D. Offerings.  Some companies may prefer to offer and sell their securities using Reg. D without having to register the securities with the SEC.

Regulation D FAQs.

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Rule 504

Rule 504 of Regulation D provides an exemption for limited offerings and sales of securities not exceeding $5,000,000.  The exemption generally does not allow companies to solicit or advertise their securities to the public, and purchasers receive “restricted” securities, meaning that they may not sell the securities without registration or an applicable exemption.  There are other provisions of Rule 504 that issuers must be aware of.

Regulation D, Rule 504 Offering Documents

Our SEC compliant Rule 504 Offering Kits include the PPM, Investor Questionnaire, Subscription Agreement, Form D (which we file for you for free), Jurisdictional Legends for all 50 states and more and are available for your corporation or LLC.

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Rule 506

Rule 506 of Regulation D is considered a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act.  Companies relying on the Rule 506 exemption can raise an unlimited amount of money.  Purchasers of securities offered pursuant to Rule 506 receive “restricted” securities, meaning that the securities cannot be sold for at least a year without registering them. 

Two distinct exemptions fall under Rule 506: Rule 506(b) and Rule 506(c).

Rule 506(b)

(i) The company cannot use general solicitation or advertising to market its securities;

(ii) The company may sell its securities to an unlimited number of “accredited investors” and up to 35 other purchasers.  All non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment;

(iii) Companies must decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws.  But companies must give non-accredited investors disclosure documents that are generally the same as those used in registered offerings.  If a company provides information to accredited investors, it must make this information available to non-accredited investors as well; and

(iv) The company must be available to answer questions by prospective purchasers.

Rule 506(c)

A company can broadly solicit and generally advertise the offering and still be deemed to be undertaking a private offering within Section 4(a)(2) if:

(i) The investors in the offering are all accredited investors; and

(ii) The company has taken reasonable steps to verify that its investors are accredited investors.

Regulation D, Rule 506 Offering Documents

Our SEC compliant, Rule 506(b) and Rule 506(c) Offering Kits include the PPM, Investor Questionnaire, Subscription Agreement, Form D (which we file for you for free), Patriot Act Disclosures, Jurisdictional Legends for all 50 states and more and are available for your corporation, LLC, Hedge Fund or Real Estate Fund.

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Rule 506(c) Funding

Be sure to check-out our Rule 506(c) Funding Solution.

 

 

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 Our SEC compliant documents and other services are not a substitute for the advice of legal counsel.