What is a Reg D Offering?
Raising capital is a critical milestone for many startups, private companies, and real estate ventures. Yet navigating the regulatory landscape of securities laws can be complex and costly. Fortunately, Regulation D (“Reg D”) of the Securities Act of 1933 offers an efficient path to raise funds without going through the time-consuming and expensive process of registering securities with the Securities and Exchange Commission (“SEC”). These types of offerings are often referred to as “private placements” and completed using a “PPM”.
In this post, we’ll break down what a Reg D offering is, who it’s for, and how it works—from the perspective of a securities law practitioner.
What Is Regulation D?
Regulation D is a set of SEC rules that provide exemptions from the requirement to register securities before offering or selling them. Instead of filing a full registration statement like a public company would for an IPO, issuers can rely on Reg D to raise capital from certain investors more quickly and with fewer compliance burdens.
Reg D is not a loophole or a way to “avoid” regulation. Rather, it’s a legal framework that balances capital formation with investor protection. Companies conducting a Reg D offering must still comply with disclosure, filing, and anti-fraud provisions of federal and state securities laws.
The Main Rules Under Reg D: 506(b), and 506(c)
Although Reg D includes three key exemptions, each with distinct requirements and limitations, the most commonly used are Rule 506(b) and Rule 506(c). Some key points about each:
Rule 506(b)
Offering Size: Unlimited.
Investor Types: Up to 35 non-accredited but "sophisticated" investors; unlimited accredited investors.
General Solicitation: Prohibited.
Disclosure Requirements: If any non-accredited investors are included, detailed disclosures (akin to those in a public offering) are required.
SEC Filing Required: Yes—Form D.
Rule 506(b) is one of the most widely used exemptions. It allows issuers to raise unlimited capital from accredited investors and a limited number of non-accredited investors, so long as no general advertising or solicitation is used.
Rule 506(c)
Offering Size: Unlimited.
Investor Types: Accredited investors only.
General Solicitation: Permitted.
Verification Requirement: Issuer must take "reasonable steps" to verify accredited status (e.g., tax returns, W-2s, third-party verification).
SEC Filing Required: Yes—Form D.
Rule 506(c) is a newer addition (since 2013), allowing broader marketing and advertising, provided all purchasers are verified accredited investors. This has become increasingly popular with online investment platforms and crowdfunding-type offerings targeting high-net-worth individuals.
Who Qualifies as an Accredited Investor?
Under Regulation D, an accredited investor includes:
Individuals with income exceeding $200,000 ($300,000 with a spouse) in each of the last two years and an expectation of the same for the current year;
Individuals with a net worth over $1 million, excluding the value of their primary residence;
Certain entities (banks, insurance companies, trusts, and funds) with over $5 million in assets;
Registered investment advisors, brokers, and other financial professionals with FINRA certifications.
Accredited investors are presumed to have the financial sophistication and resources to bear the risks of private investments, which is why fewer disclosures are typically required.
What is Form D?
Form D is a notice filing that must be submitted electronically to the SEC within 15 days of the first sale of securities under Regulation D. It provides basic information about the issuer, the offering, and the exemption being relied upon. While not reviewed or approved by the SEC, failure to file can lead to enforcement action or disqualification from future exemptions.
In addition to federal requirements, many states have their own “blue sky” laws that may require separate notice filings and fees.
Why Use a Reg D Offering?
Reg D offers several compelling advantages:
Speed and Cost-Effectiveness: No need for an SEC registration statement.
Access to Capital: Ability to raise significant funds.
Flexibility: Can be used by startups, real estate sponsors, hedge funds, and other private issuers.
Investor Protections Maintained: Still subject to anti-fraud rules and basic disclosure requirements.
However, compliance remains crucial. Missteps—like improperly verifying investors under Rule 506(c) or failing to file Form D—can jeopardize the exemption and expose the issuer to liability.
Final Thoughts
A Reg D offering can be a powerful tool for raising capital, but it is not a one-size-fits-all solution. Selecting the right exemption and structuring the offering properly requires a careful analysis of your business goals, investor base, and marketing plans.
Engaging experienced securities counsel is essential to avoid pitfalls, maintain compliance, and ensure that your offering is conducted lawfully and efficiently.
Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. It also does not create an attorney client relationship with the reader. For guidance specific to your situation schedule a consultation!