Series 65: Private Placements: Regulation D

Taken from our Series 65 Online Guide

Private Placements: Regulation D

Probably the most common method of issuing securities without going through the rigorous SEC registration process is through a private placement. A private placement is an offering of securities to a small group of selected investors. Private placements are subject to the provisions of the Securities Act of 1933, but if the offering meets certain conditions stated within the Act, the offering may be exempted from traditional registration requirements. For this reason, an exempt private placement is considered an exempt transaction.

Most private placements are issued under the set of rules stated in Regulation D of the 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 (except Rule 506(c) offerings). Filers of private placements must electronically file a Form D within 15 days of first use.

Regulation D offers four types of opportunities for issuers. An issuer that chooses to conduct its offering under Rule 506 must choose either 506(b) or 506(c) (see below) and stick to this decision throughout the offering.

  • Rule 504 is for equity offerings under $1 million and includes no restrictions on who can purchase the security.
  • Rule 505 is for offerings under $5 million and does restrict the number of non-accredited purchasers of the security. An accredited investor is someone the SEC regards as wealthy or sophisticated enough to be able to make good financial decisions and absorb substantial losses (see specific definition below). For this reason, the SEC does not restrict how many accredited investors are allowed to invest in a Rule 505 private pla

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