Reg D: Offering Exemption

SEC:  The Securities and Exchange Commission

The U.S. Securities and Exchange Commission holds primary responsibility for enforcing the federal securities laws and regulating the securities industry, the nation's stock and options exchanges, and other electronic securities markets in the United States

Regulation D

The Securities and Exchange Commission makes it unlawful to sell securities to investors absent either a registration with the SEC or an exemption from registration.
Since its inception, Regulation D has been generally heralded as a regulatory success story for the SEC.   It has been touted as providing legal certainty in areas where it previously had been non-existent.   This oft-cited benefit has enhanced the capital formation capabilities of small businesses.

Regulation D is a collection of three exemptions:

  • Rule 504 exempts offerings which do not exceed $1 Million during any 12 month period.  General offering and solicitations are permitted under Rule 504 as long as they are restricted to accredited investors.
  • Rule 505 covers offerings not exceeding $5 Million during any 12 month period.  Securities may be sold to an unlimited number of "accredited investors" and up to 35 "unaccredited investors" who do not need to satisfy the sophistication or wealth standards associated with other exemptions
  • Rule 506 exempts offerings without any limitation on the dollar amount of securities which can be sold.  Unlike Rule 505, all non-accredited investors must be sophisticated - that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.

Accredited Investor

  • A bank, insurance company, registered investment company, business development company, or small business investment company
  • An employee benefit plan with total assets in excess of $5 million;
  • A charitable organization, corporation, or partnership with assets exceeding $5 million;
  • A director, executive officer, or general partner of the company selling the securities
  • A business in which all the equity owners are accredited investors
  • A natural person with individual or joint net worth that exceeds $1 million at the time of the purchase, excluding the value of their primary residence]
  • A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year
  • A trust with assets in excess of $5 million not formed to acquire the securities offered.