Regulation D

Regulation D of the Security and Exchange Commission (SEC) is part of the Securities Act of 1933. Most offers to sell securities must be registered with the SEC, the regulation provides certain exemptions for small issuances of securities and small issuers. There are mainly two types of exemption under Regulation D, Rule 504 and Rule 506.

The SEC must be notified within fifteen days of the first offering.

Rule 504

Rule 504 permits qualified issuers to sell up to $10 million of securities during a 12-month period, without limitation on the number or the type of investors. Although registration and financial information is not required, the issuer must notify the SEC about the 504 sale.

The companies can sell non-restricted securities only if one of the conditions met:

  1. The offering is registered in a state that requires a publicly filed registration statement, and disclosure documents are delivered to investors.
  2. The registration and sale takes place in a state that requires registration and disclosure delivery, and the buyer is in a state without those requirements, so long as the disclosure documents mandated by the state in which you registered to all purchasers are delivered; or
  3. The securities are sold exclusively according to state law exemptions that permit general solicitation and advertising, if sale is only to accredited investors.

Rule 506

Rule 506 permits qualified issuers to offer unlimited amounts.

To be eligible to offer securities under Rule 506, the company should follow the following restrictions and criteria.

The offering may be purchased by unlimited accredited investors and no more than 35 non-accredited investors.

If the issuer will use general solicitation or advertising to market the securities then the sale of securities can be offered to accredited investors only.

The issuer must exercise reasonable care to ensure that the purchasers of the securities are not underwriters and that such investors are purchasing strictly for their own investment purposes (generally by signing a letter).

The exemption is only for transactions in which the securities are offered or sold by the issuer. The resale of the securities is restricted.

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