Regulation D (Reg D) is a set of rules established by the U.S. Securities and Exchange Commission (SEC) that allows companies to raise capital without registering their securities for public sale and is related to, but different than other JOBS Act regulations. Reg D also establishes certain disclosure requirements that companies must comply with when selling securities under this type of offering and offers several advantages for companies seeking to raise capital, these include:
- Ability to raise capital from accredited and some nonaccredited investors
- Reduced disclosure requirements, and faster access to capital
- No limits on offering sizes
However, there are also certain drawbacks associated with Reg D. For example, companies must comply with state regulations that may require disclosure of notices of sale or the names of those who receive compensation in connection with the sale. Additionally, the benefits of Reg D only apply to the issuer of the securities, not to affiliates of the issuer or to any other individuals who may later resell them.
What is Reg D?
Reg D is a set of rules established by the SEC to help companies raise capital without registering their securities for public sale. The regulations are designed to make it easier for businesses to access capital markets and take advantage of potential investors who were not previously able to invest in private offerings.
Under Regulation D, companies are allowed to raise capital without registering their securities with the SEC under rule 506. Under Rules 506(b) and 506(c), companies are not limited to the amount of capital that can be raised. However, offerings under rule 506(b) cannot use any form of general solicitation, which means they need to rely on their networks of accredited investors. In addition, 506(b) offerings can have up to 35 nonaccredited investors.
Who Can Benefit from Reg D?
Reg D can benefit both companies and investors. Companies can access capital markets without registering their securities for public sale, a great alternative to a cost-intensive IPO. Issuers can also raise the capital they need to grow and expand their business, as well as fund future rounds of fundraising that may be accomplished through a Reg CF or a Reg A+ offering.
For investors, Reg D offers the opportunity to invest in companies with potentially higher returns than other investments due to the increased risk associated with such investments. The majority of investors must meet specific criteria (such as having an annual income of over $200,000) to be considered accredited investors.
Is Reg D Suitable For My Company?
The answer to this question depends on several factors, such as your company’s financial situation and whether you can meet the disclosure requirements under Reg D. Companies that may benefit from a Reg D offering include:
- Start-ups or development-stage companies
- Growing businesses needing additional capital
- Companies looking to access capital more quickly than they could through a traditional public offering
Reg D can be beneficial for companies, as well as accredited investors who meet specific criteria. While there are potential risks associated with a Reg D offering, it may be suitable for your company if you can meet the disclosure requirements and familiarize yourself with the relevant regulations. Ultimately, it is important to consult a qualified securities lawyer to determine if Reg D is the right option for your company.