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Under the Securities Act
of 1933, any offer to sell securities must either be registered with
the Securities Exchange Commission (SEC) or meet an exemption.
Regulation D (also known as "Reg. D") became effective April 15, 1982. It's one
of the key SEC exemptions for small businesses that want to raise money.
Regulation D provides some exemptions from the registration requirements,
allowing some smaller companies to offer and sell their securities without
having to register with the SEC. These offerings are referred to as
private placements - which is the opposite of a
public offering that would be registered.
Regulation D consists of six basic rules.
The first three are concerned with definitions, conditions and notification.
Rule 501 covers the definitions of the various terms used in the rules including
that of an Accredited Investor. Rule 502 sets forth the conditions,
limitations, and information requirements for the exemptions in rules 504, 505,
and 506. Rule 503 contains the SEC notification requirements.
The last three rules deal with the specifics of raising money. Rule 504
generally pertains to securities sales up to $1 million. Rule 505 applies to
offerings up to $5 million (including those offerings less than $1,000,000).
Rule 506 is for securities offerings with no limit or any dollar amount
(including those offerings less than $5,000,000 million).
A Regulation D
offering, however does not mean that companies are free from any requirements by
the SEC. On the contrary, to meet the requirements of a Regulation D offering
companies issuing the investment must prepare extensive disclosures regarding
the nature, character and risk factors relating to an offering. These
disclosures are usually put forth in a Private
Placement Memorandum or PPM. See: What is a
PPM?
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Pertinent Details of
Regulation D Offerings |
Many aspects of Regulation D offerings are
extensive and can be confusing. It is always prudent to get the advice and
consultation of an attorney or investment professional when evaluating these
types of investments.
Nevertheless the following is a summary of some of the pertinent details: |
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You must be an Accredited Investor to invest
in a Regulation D Offering.
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You must acquire the security for investment
purposes and not for the purpose of resale.
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The investment must be suitable for you.
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There can be no general solicitation of
advertising of a specific private placement offering.
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There can be no more than 35 investors
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There can be no fee sharing with
non-registered persons. This includes, but is not limited to, real estate
broker, accountants, CPAs, attorneys and qualified intermediaries. |
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