REGULATION D OFFERINGS

How it Works

reg d how it works

What is Regulation D?

The Securities Act of 1933 spawned Regulation D or Reg D. The purpose of Reg D is to ensure that growing companies are able to be compliant while handling an infusion of fractional investment capital from a group of individual investors. Simply stated, the company can offer a private equity stake to a group of investors that combine their capital to buy a portion of the company (creating a security in the process because they are buying components of a business structure). Whether companies are seeking start-up capital or need to raise equity with the intention of launching an Initial Public Offering or IPO at a later date, there is no other form of financing as flexible and consistently proven as a Reg D offering.

HOW IT WORKS:

PLAN

Most entrepreneurs are not experts in raising capital, thus typically have poorly structured transactions. An improper transaction structure will portray an unprofessional image to potential investors. The very first step in an offering is properly setting the structure (in equity transactions, company share structure).

Structuring usually includes: setting share price or note amounts, determining how much of the company to sell (in equity transactions), which Reg D program to use, setting the maturity date and rate of return for promissory notes (in debt situations), share allocations to principals (so they maintain a set amount of control in the company), minimum and maximum offering amounts which set the effective range of the offering, minimum amount of investment per investor, etc.

Using one of our proven PPM templates can help guide you through this process and help you structure your deal so it is attractive to potential investors.

PREPARE

Preparing an offering involves the creation of the Regulation D offering documents. These documents include:

  • Private Placement Memorandum: The Private Placement Memorandum, or "PPM", is the document that discloses all required information to the investors about the company, proposed operations, the transaction structure (whether you are selling equity ownership or raising debt financing from the investors), the terms of the investment (share price, note amounts, maturity dates, etc.), risks involved, etc.

 

  • Subscription Agreement: The Subscription Agreement explains the terms and conditions of the offering. It is the "investment contract" for purchasing the securities. Typically an investor will complete this document, a questionnaire, and then attach a check for the investment.

 

  • Promissory Note: In debt offerings you need to have a Promissory Note outlining the terms of the loan arrangement with the investors. The note is the actual "loan document" between the company and the investor.

 

  • Form D SEC Filing: The Form D is the form filing that is submitted to the SEC using the EDGAR website. It notifies the SEC that you are using the Regulation D program and provides them basic information on the company and the offering. (See our section on "Filing Form D.")

Note: It is not an approval document or registration, rather it is a filing that notifies the SEC that you have a Regulation D Offering in place.

 

  • State Form Filing: Also called "Blue Sky" Filings, all states except for Arizona, Florida and Maine now use the NASAA EFD system to perform a notice filing in their state. Nearly all states charge a fee ranging from $50 to $495 but some are significantly more. After receiving the capital you typically have 15 days to file the appropriate documentation. (See our section on "Blue Sky Compliance.") Please note, many states charge late fees if you exceed the 15 day requirement.

OFFER

The offering is now ready for marketing to investors. If you are planning to use only Accredited Investors then Rule 506(c) might be your best choice as thanks to the Jump-start our Business Start-ups Act (JOBS Act) you can now use general advertising to market your offering.

The Regulation D Programs can be used by domestic as well as foreign corporations. While the programs can be used by any corporation type – the preferred structure is a “C” Corporation or Limited Liability Corporation “LLC”.

%

According to the SEC only 13% of Regulation D Offerings since 2009 report using a financial intermediary such as a Broker/Dealer or Finder.

Reg D Offerings/Private Placements

Private Placements or private stock offerings are “private” equity/debt transactions and are considerably less expensive to complete than an initial public offering such as an IPO (for the purpose of raising capital). While companies using a Reg D exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what’s known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s owners and stock promoters, but contains little other information about the company.

 Who Should Use Regulation D?

Any private or public company seeking to raise capital or private financing from investors should have a securities offering in place. Only a securities offering can provide the needed federal and state requirements to keep the investment capital safe from being rescinded at a later date. Regulation D Offerings provide the framework for raising capital from private investors, regardless of your industry type, age of your company, or the size of your organization.

Can I Advertise my Offering?

The SEC has specific rules concerning how a company solicits capital from investors - even if only a few investors are involved. Through the enactment of the Jump-start Our Business Start-ups (JOBS) Act you are now allowed to use general advertising using Rule 506(c) under certain conditions.

Find a PPM Template for Your Offering:

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