1.1.2.1.1. Exemption Requirements
Most private placements are issued under the set of rules stated in Regulation D of the Securities Act. Under Regulation D, companies can offer securities to a limited group of individuals or institutions that meet certain requirements. Regulation D is open to both U.S. and foreign issuers and can be used for both equity and debt securities. To protect the public from private placement investments that have not gone through the traditional rigorous SEC review, no public advertising is permitted for most Regulation D offerings, with exceptions as indicated later in this section. Regulation D has provisions excluding bad actors, which are issuers who have disqualified themselves through various types of misconduct.
Issuers of private placements must electronically file a Form D within 15 days of the first sale of the offered securities. Form D describes the nature and size of the offering, the exemptions to be claimed, the minimum allowable investment, and the number of non-accredited investors. Amendments to Form D must be filed annually, unless a material change or filing error requires an immediate filing.
Regulation D offers three types of opportunities for issuers: Rule 504, Rule 506(b), and Rule 506(c).
1. Rule 504 allows an exemption for certain small offerings made by non-reporting issuers. (Investment companies and shell, or “blank check,” companies, defined as development-stage companies with no specific business plan and issuers of penny stock do not qualify for the exemption.) There is no limit on the number of investors in a Rule 504 offering. The exemption is available for offerings with an aggregate offering price of $10 million or less. For purposes of calculating the aggregate offering price, the SEC looks back for 12 months from the date of the offering to see the total amount of securities the issuer offered in Rule 504 offerings during that period. The SEC exempts Rule 504 offerings from c