Private Securities Offerings and Regulation D

Capital Markets Law Group represents companies in structuring and documenting exempt offerings of equity, debt, convertible securities, warrants, and other instruments.

What Is a Regulation D Offering?

A Regulation D offering is structured to rely on an exemption from federal securities registration. Principal alternatives include:

• Rule 506(b): generally prohibits general solicitation and permits sales to accredited investors and a limited number of qualifying non-accredited investors. The rule caps non-accredited purchasers at 35 in any offering.
• Rule 506(c): permits general solicitation if every purchaser is accredited and the issuer takes reasonable steps to verify accredited status.
• Rule 504: permits eligible issuers to offer up to $10 million in a 12-month period, subject to federal and state requirements.

Each path carries its own investor standards, disclosure expectations, and filing requirements. Rule 506 offerings are not subject to state registration or review, though state notice filings and antifraud rules still apply.

What Is an Accredited Investor?

An accredited investor is a person or entity satisfying one or more financial, professional, ownership, or entity-based standards under SEC rules. Among the individual standards, a natural person qualifies with income exceeding $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent exceeding $300,000 in each of those years, with a reasonable expectation of reaching the same level in the current year, or with net worth exceeding $1 million excluding the primary residence.

The method used to evaluate accredited status differs between Rule 506(b) and Rule 506(c). Rule 506(c) requires reasonable verification steps, which can include reviewing tax returns, bank and brokerage statements, credit reports, or written confirmations from registered broker-dealers, investment advisers, or licensed attorneys or CPAs.

Can the Company Advertise Its Offering?

That depends on the exemption. Rule 506(b) generally prohibits general solicitation. Public advertisements, unrestricted websites, broadly distributed social-media posts, and communications to persons without an appropriate relationship may create concerns. Rule 506(c) permits general solicitation, but every purchaser must be accredited and verified.

Does the Company Need a Private Placement Memorandum?

Not in every offering. The company nevertheless remains subject to federal and state antifraud laws and must avoid material misstatements or omissions. A private placement memorandum may address:

• The company and its business
• Offering terms
• Use of proceeds
• Risk factors
• Management
• Capitalization
• Financial information
• Related-party transactions
• Conflicts
• Description of securities
• Transfer restrictions
• Subscription procedures

What Documents May Be Needed?

An exempt offering may involve:

• Term sheet
• Private placement memorandum
• Subscription or purchase agreement
• Investor questionnaire
• Verification documents
• Notes, warrants, or preferred-stock terms
• Registration-rights agreement
• Investor-rights agreement
• Board and shareholder approvals
• Charter amendments
• Placement-agent agreements
• Form D
• State notices
• Closing certificates
• Transfer-agent instructions

When Should Counsel Become Involved?

Before the first investor conversation. Solicitation methods, investor categories, and the structure of the securities all affect which exemption is available, and choices made before the first solicitation can foreclose later options. Early counsel review covers:

• Choosing among Rules 506(b), 506(c), and 504 before solicitation begins
• Designing investor questionnaires and verification procedures
• Structuring the securities so the exemption survives the terms
• Planning the Form D filing and state notices around the first sale
• Deciding how resales will be restricted after closing

What Commonly Causes Problems?

Recurring issues in private offerings include:

• Solicitation practices that do not match the exemption selected
• Verification failures in Rule 506(c) offerings
• Non-accredited investor counts that exceed the 35-purchaser limit in Rule 506(b)
• Missing Form D filings or late state notices
• Offering documents that describe the securities inaccurately
• Commissions paid to unregistered finders
• Resale restrictions that were never documented

Fixes after the fact are limited. The exemption analysis is best settled before the first investor is contacted.

What Alternatives Are Available?

Depending on the investor base and the amount sought, alternatives include Regulation A offerings for public offerings, Regulation Crowdfunding for smaller raises through registered intermediaries, Rule 504 for eligible issuers up to $10 million, registered offerings for larger companies, and loans or other non-security structures where the instrument genuinely is not a security. Each carries its own conditions, and the comparison pages describe the main ones in detail.

How Does Capital Markets Law Group Help?

Our representation may include:

1. Selecting the appropriate exemption
2. Structuring the security and offering
3. Reviewing investor-solicitation methods
4. Preparing offering documents
5. Conducting legal due diligence
6. Preparing risk and conflict disclosure
7. Negotiating with investors and placement agents
8. Preparing corporate approvals
9. Filing Form D and coordinating state notices
10. Closing the financing
11. Advising on resale restrictions
12. Supporting later amendments or registrations

Frequently Asked Questions

Can a Company Raise an Unlimited Amount Under Rule 506?

Rule 506 does not have a stated dollar cap, but all applicable conditions must be satisfied.

Can Friends and Family Invest?

Possibly. Their participation must fit within the selected exemption.

Are Regulation D Securities Freely Tradable?

Generally not. They are ordinarily restricted securities, and resales depend on Rule 144, a resale registration, or another exemption.

Can a Company Conduct an Offering Entirely Online?

Potentially under Rule 506(c), if every purchaser is verified as accredited. The website, platform, and social-media channels still carry general-solicitation and antifraud consequences for the whole offering.

Do State Securities Laws Apply?

Yes. State notice filings, fees, antifraud laws, or other requirements may apply.

When Must the Form D Be Filed?

The SEC requires the Form D notice for each new offering no later than 15 calendar days after the date of first sale, which is the date the first investor is irrevocably contractually committed. Filing late does not erase the obligation, and some consequences of a late filing can be addressed only prospectively.

How Many Non-Accredited Investors Can Participate in a Rule 506(b) Offering?

Up to 35. The rule counts purchasers other than accredited investors, and related groups can count as one purchaser. The issuer must also satisfy the information requirements for non-accredited purchasers, which mirror the disclosure levels of a registered offering in specified respects.

What Does Verifying Accredited Status Involve in a Rule 506(c) Offering?

The issuer must take reasonable steps to verify that each purchaser is accredited. Reasonable steps depend on the facts, and the SEC has identified objective methods, including reviewing income and net-worth documentation or obtaining written confirmations from registered broker-dealers, investment advisers, licensed attorneys, or CPAs who have verified status within the prior three months.