Regulation S: Raising Capital From Offshore (Non-US) Investors

As the name implies, "Regulation S" is not a safe harbor under Regulation D. However, Regulation S ("Reg S") provides a distinct safe harbor that permits companies to offer and sell securities outside the United States without registering under the Securities Act. Reg S is worth noting in this context, as it enables issuers to raise capital from non-U.S. investors, provided the offering complies with the securities laws of the relevant foreign jurisdictions. Importantly, the issuer must also take reasonable precautions to prevent the securities from being resold into the United States. Here is a brief overview of Reg S as of the date of this article, but as always consult with your securities attorney to fully understand this offering type.

In short, a Reg S offering is a method for raising capital from international investors without registering the offering with the Securities and Exchange Commission ("SEC"). It's an exemption from the registration requirements of the Securities Act of 1933 when securities are offered and sold outside the United States.

Key Features of a Regulation S Offering:

• Offshore Transaction: The offering must be made to investors who are not in the United States, and the sale must occur outside the U.S.
• No Directed Selling Efforts in the U.S.: The issuer cannot engage in any activities that could be expected to influence the U.S. market for the securities being offered.
• Compliance Period: Securities offered under Reg S are considered "restricted securities" and may have restrictions on resale within the U.S. for a specified period, which can vary depending on the issuer and type of security. 
• Resale Restrictions: Securities issued under Reg S are typically subject to resale restrictions for a period of time, often one year from the issuance date for non-reporting issuers.
• No SEC Registration: Reg S offers an exemption from the registration requirements of the Securities Act of 1933, allowing companies to raise capital internationally without the need for SEC registration. 
• Potential for Combined Offerings: A U.S. issuer can offer securities both within the U.S. (e.g., through Rule 144A) and offshore (through Reg S) at the same time. 

Who Can Use Regulation S?

• U.S. and foreign issuers, distributors, affiliates of issuers, and any person acting on behalf of these parties can rely on Reg S.
• Non-U.S. resident purchasers and U.S. residents who are not offering participants can also participate. 

Benefits of Regulation S:

• Access to International Capital: Allows companies to tap into a broader pool of investors and raise capital internationally.
• Reduced Registration Burden: Eliminates the need for SEC registration, which can be a complex and time-consuming process. 

Key In Mind These Important Considerations:

• Offshore Transaction: Carefully consider the definition of an offshore transaction and ensure that the offer and sale meet the requirements.
• Directed Selling Efforts: Avoid any activities that could be considered directed selling efforts in the U.S., as this could jeopardize the exemption.
• Resale Restrictions: Be aware of the resale restrictions on securities issued under Reg S and comply with the applicable rules. 
• Flowback Concerns: Reg S is designed to prevent the flowback of unregistered securities into the U.S.