4.2.9.1. 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. Most private placements are issued under Regulation D, which allows companies to 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, public advertising is generally not permitted for Regulation D offerings. Filers of private placements must electronically file a Form D within 15 days of first use.
Regulation D offers three types of opportunities for issuers under three different rules.
1. Rule 504 is for offerings under $10 million. There is no limit on the number of investors, and the investors do not need to be accredited. Rule 504 cannot be used by reporting companies, investment companies, or blank check companies.
The SEC exempts Rule 504 offerings from certain requirements if they are governed by sufficiently strict blue sky laws. Such Rule 504 offerings may be publicly advertised, and their securities are not designated as restricted securities (see below).
2. Rule 506(b) has no dollar cap and restricts non-accredited investors to 35. The non-accredited investors must all be sophisticated or be represented by a purchaser representative who is sophisticated. For purposes of Rule 506(b), sophisticated means having the expertise to assess the investment’s merits and risks. There is no limit on the number of accredited investors.
3. Rule 506(c) was created under the 2012 JOBS Act. Issuers that opt to raise money under this rule have no dollar cap and are allowed to use general solicitation to ad