Raising capital through a private placement can be an efficient and strategic way for companies to finance growth without the burdens of public registration or otherwise slow and expensive methods of obtaining capital (e.g., SBA loans, bank line of credit). Regulation D of the Securities Act of 1933 provides several exemptions that allow businesses to offer and sell securities without registering with the Securities and Exchange Commission ("SEC"), provided certain conditions are met. These exemptions offer a streamlined regulatory path while still protecting investors through disclosure and qualification requirements.
This guide outlines the key steps involved in conducting a Reg D offering—from selecting the appropriate exemption and preparing offering documents, to verifying investor qualifications and meeting federal and state filing requirements. Whether a company is seeking early-stage funding or launching a more sophisticated capital raise, understanding and following these steps is essential for a successful and compliant offering.
Step 1 — Identify the Appropriate Regulation D Exemption
The initial step in a Reg D offering is selecting the exemption that aligns with the company’s capital-raising strategy. Regulation D provides three primary exemptions: Rule 504, Rule 506(b), and Rule 506(c). Each has distinct requirements and limitations, and selecting the appropriate exemption depends on factors such as target investor type, amount to be raised, and marketing approach.
Step 2 — Prepare Offering Documents
After identifying the appropriate exemption, the offering documents must be prepared, primarily a Private Placement Memorandum (PPM) and subscription agreement. These documents must thoroughly outline the terms of the offering, material risks, and the company’s financial and business information to provide investors with sufficient disclosure for informed decision-making.
Step 3 — Verify Accredited Investor Status
For Regulation D Rule 506 offerings, investor eligibility is a key requirement. Issuers must ensure that investors qualify as “accredited investors” as defined by SEC regulations. Under Regulation D Rule 506(c), this includes taking “reasonable steps” to verify accredited status, which may involve reviewing financial records, tax returns, or obtaining written confirmation from a licensed advisor.
Step 4 — File Form D with the SEC
Within 15 days following the first sale of securities, issuers must file Form D electronically with the Securities and Exchange Commission via EDGAR. This notice filing discloses essential details about the offering, including the exemption relied upon, total amount raised or intended to be raised, and number and type of investors.
Step 5 — Comply with State Blue Sky Laws
Although the majority of offerings under Reg D are exempt from state registration, most states still require notice filings and payment of associated fees. Each state’s requirements differ, and issuers must ensure compliance in every jurisdiction where securities are offered or sold.
Step 6 — Launch and Conduct the Offering
Once the offering is structured, documents are finalized, and required filings are made, the company may begin soliciting and accepting investments. Under Regulation D Rule 506(b), general solicitation is prohibited; under Regulation D Rule 506(c), general solicitation is permitted but only accredited investors may purchase.
Step 7 — Maintain Investor Communications and Disclosures
Post-offering, companies may be subject to ongoing obligations depending on the nature of the securities and investor expectations. While Reg D does not impose formal ongoing reporting requirements, best practices include providing periodic financial statements, business updates, and maintaining transparency to preserve investor trust and facilitate future capital raises.
Conducting a Regulation D private placement involves careful planning and regulatory compliance. By following these steps and working with knowledgeable legal and financial advisors, companies can effectively raise capital while minimizing regulatory risk and protecting investor interests.
