Regulation D Offerings
Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (or Reg D) provides three exemptions from the registration requirements, allowing some smaller companies to offer and sell their securities without having to register the securities with the SEC. For more information about these exemptions, read our publications on Rules 504, 505, and 506 of Regulation D.
While companies using a Reg D exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what’s known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters, but contains little other information about the company.
If you are thinking about investing in a Reg D company, you should call the SEC’s Public Reference Branch at (202) 551-8090 or send an email to firstname.lastname@example.org to determine whether a company has filed Form D or to obtain a copy. If the company has not filed a Form D, this should alert you that the company may not be in compliance with the federal securities laws. Here's the link to all the U.S. Securities Laws.
You should always check with your state securities regulator to see if they have more information about the company and the people behind it. Be sure to ask whether your state regulator has cleared the offering for sale in your state. You can get the address and telephone number for your state securities regulator by calling the North American Securities Administrators Association at (202) 737-0900 or by visiting its website. You’ll also find this information in the state government section of your local phone book.
Why We Use Reg D?
Any private or public company seeking to raise capital or private financing from investors should have a securities offering in place. Only a securities offering can provide the needed federal and state requirements to keep the investment capital safe from being rescinded at a later date.
Regulation D Offerings provide the framework for raising capital from private investors, regardless of your industry type, age of your company, or the size of your organization. The Regulation D Offering Programs are ordinarily used to raise from $25,000 to $100,000,000 in capital.
Even if your capital raise will only involve one or two investors - you still need to provide the proper disclosures and investment agreements required for raising capital. Raising capital from investors (debt or equity, of any amount) requires very specific language. Business Plans do not provide this language. It is imperative that a company seeking capital from investors have a Private Placement Memorandum, a Subscription Agreement (or promissory note) and the proper federal and state filing forms. Raising capital without these documents is highly discouraged.
The SEC (and each state) has specific rules concerning how a private company solicits capital from investors - even if only a few investors are involved.
The Regulation D Offering program is the exemption program designed by the SEC for private business which excludes the issuer from registering each class of securities. It is the most widely used program the SEC offers and provides the proper exemption needed to raise capital from private investors.
Not raising capital properly can provide investors with a "right of rescission" in the future. This means they can get their investment back regardless of the circumstances. You could also face fines and other penalties resulting from an improper sale of securities to investors.
The following items can be considered securities:
- stock shares
- any percentage of ownership sold to another person or entity
- promissory notes
- memberships (such as in an LLC or Partnership)
- real estate
Regulation D Offerings are used for a wide variety of offerings and industry types:
- corporate seed capital
- corporate expansion capital
- film production / entertainment capital
- real estate equity funding (acquisitions, development projects, rehab)
- capitalization for early stage Internet and technology companies
- expansion capital for retail businesses, marketing, product development and distribution funding