Regulation D, also known as Reg Dex or Reg D, comprises three rules—rules 504, 505 and 506—that provide exemptions from registration requirements with the Securities and Exchange Commission (SEC) for certain companies offering and selling securities. These companies are smaller in size and often can’t bear the financial burden of a typical SEC registration. The intent is to expedite the process of raising capital for small companies.
Rule 504 of Regulation D provides exemptions for certain companies offering and selling up to $1 million of their securities in any 12-month period. Under Rule 505, qualifying companies can only offer and sell up to $5 million of its securities in any 12-month period; they must provide financial statements and may sell to an unlimited number of accredited investors as well as up to 35 other individuals; they cannot solicit or advertise to sell their securities; and purchasers may only receive restricted securities.
Meanwhile, Rule 506 of Reg D is a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act. Companies offering under Rule 506 can raise unlimited capital as long as they do not solicit or advertise to sell their securities; provide financial statements to and answer all questions from prospective buyers. These companies can sell to an unlimited number of accredited investors and up to 35 other purchasers who have the necessary sophistication to evaluate the merits and risks of the prospective investment. Rule 506 of Reg D is the most common choice for filers.
Companies offering under Regulation D must file a Form D in XML format via the SEC’s EDGAR (Electronic Data Gathering, Analysis and Retrieval) system.
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