regulation d programs

“Regulation D” is a government program created under the Securities Act of 1933, instituted in 1982, that allows companies the ability to raise capital through the sale of equity or debt securities. The programs were designed to provide two main things – the needed “exemption” to sell unregistered securities in a private transaction (something that happens in any transaction involving investors) and the appropriate framework and documentation for doing so properly.

There are several programs that are available under the Regulation D Exemption. Most of our clients typically choose the JOBS Act 506(c) program as it allows general advertising and solicitation of the offering and also benefits from some compliance efficiencies with State “Blue Sky” filings.

The Necessity of a Regulation D Offering

Why do so many companies fail at raising private capital from investors? One primary reason for failure is significant: the company did not provide investors with the fundamental capability to execute the investment transaction.

Many companies do not execute a proper private placement securities offering in conjunction with their capital raise – instead relying on a business plan or executive summary to serve as the basis for investment. This is not only unprofessional, but it doesn’t provide the basis for accommodating investment from individual investors properly, effectively, or in compliance with State and Federal rules.

Any company seeking capital from investors has the responsibility to ensure it provides investors with the fundamentals necessary for them to execute an investment into the subject company. Most companies seeking capital from investors fail because they do not provide investors the means to execute an investment into the subject company.

A substantial number of companies severely restrict their capital raising activities by simply using a business plan to solicit investors. While a business plan may disclose certain information about the company’s current or planned business activities it in no way provides the capability to accommodate actual capital investment. Further, any capital raised would most likely be in violation of certain State or Federal rules regarding the investment transaction.

It is also nearly impossible to articulate concise transaction structure to investors outside of a formal securities offering thus hampering an investors capability to properly evaluate a transaction.

Regulation D Program Information

Raising capital from investors properly and effectively requires the development of a securities offering executed in compliance with State and Federal rules. Most small and medium size companies choose the SEC’s Regulation D exemption program to execute such offerings. With the advent of the JOBS Act 506(c) Program – companies can now execute a “public offering” of their investment opportunity and securities offering while still retaining the low execution cost and straightforward compliance benefits of a traditional Regulation D offering. What will a Regulation D offering provide your company? Two main advantages:

(a) The ability to solicit investors and sell them equity or debt securities in compliance with applicable regulations and;

(b) The fundamentals necessary to provide concise investment structure, proper and mandated SEC disclosure, and the capability to execute the subscription of investment funds into your company effectively

Who should use a Regulation D Offering

Any company or entrepreneur that is seeking to raise equity or debt capital from investors properly. Even if you plan on only having one or two investors in your transaction you need to provide the transaction framework, related disclosure documentation and investment agreements necessary for raising capital. A Regulation D Offering provides the proper transaction structure and documentation for raising debt or equity capital from investors. Trying to raise private capital of any amount without these fundamentals in place is almost impossible.

Most companies use the programs to raise from $25,000 to $50,000,000 in capital. Regulation D Offerings have been used for a wide variety of transaction and industry types: corporate seed capital, corporate expansion capital, film production capital, real estate equity funding (acquisitions, development projects, golf courses, rehab), capitalization for early to pre-IPO stage Internet and technology companies, expansion funding for retail companies, and product development and distribution funding.

Use the menus at the top of this page to find specific information on the available Regulation D Programs, the advantages of a Regulation D Offering, and details on the offering preparation process.

Regulation D 506c “General Advertising” Program

Ready to engage in general advertising of your private placement offering to investors?

The JOBS Act, passed in April 2012, mandated the creation of a new exemption under the Regulation D 506 program that would allow for general advertising of an offering to accredited investors. This new exemption is termed “506c” and is widely known as the “general advertising” 506 program.

The 506c exemption was activated on September 23, 2013 and allows an issuer to engage in general advertising and solicitation of accredited investors for the securities offering. The Regulation D 506c program will retain many of the characteristics of the current 506b program with some notable changes:

There are some other small adjustments to execution aspects of the offering, but the above listed changes constitute the primary modifications inherent in the 506c program. It is important to note that the current 506b program will still be available for issuers that do not need the capability to engage in general solicitation.

The 506c program is a significant change in the solicitation rules and essentially allows a client to execute a public offering of securities while retaining the benefits of a Regulation D exempt private placement (lower preparation costs, less compliance interaction with the SEC, etc.)

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