Regulation D offerings do not have to be registered with the SEC, which is why they are subject to very specific conditions. SEC Rule 502 clarifies and establishes the universal conditions to Reg D offerings, while each individual exemption has additional rules. If you are considering issuing a Reg D offering, it’s important to fully understand the conditions set forth in Rule 502. A securities lawyer from the Priori network can help you understand these conditions and how they apply to the securities offering you are contemplating.
Rule 502 Regulation D Basics
Regulation D provides a framework through which unregistered securities are permitted to be sold to investors, provided the securities offering meets certain conditions. While each specific exemption under Reg D has its own guidelines, all Reg D offerings are subject certain baseline requirements. SEC Rule 502 of Regulation D sets forth these baseline requirements of all unregistered exempt offerings under Reg D.
Rule 502 Conditions
There are four key Rule 502 conditions that must always be met for any Reg D exemption.
1. All Reg D offerings within a 12-month period must be integrated.
For the sake of taking advantage of any registration expeditions through a Reg D offering, all sales of securities of the same class or for the same purpose within the six months preceding and following a reported Reg offering must be integrated. Essentially, they will all be considered a single offering, and as such, any limits on the sale price or number of purchasers is cumulative.
2. Proper disclosures and related financial information must be given.
If any Reg D offering involves non-accredited investors, proper disclosures of all risks of the investment and related financial information of the company must be given to purchasers. These disclosures are generally the same as those that would be required in a Regulation A offering. While accredited investors do not have to be given any particular disclosures, it is nevertheless common to provide some kind of disclosure document regardless.
3. There can be no “general solicitation.”
Reg D offerings must not be advertised through “general solicitation,” such as through internet advertising or other media. To avoid running afoul of these rules, you must only solicit investment from people you already have some relationship with, either directly or through an introduction.
4. Regulation D offerings must be restricted securities.
All securities sold in Regulation D offerings are automatically designated as restricted securities. This means that they cannot be resold unless they are registered or transferred under a registration exemption after a certain holding period has passed.
FAQ
How can I find investors for a Regulation D offering if no general solicitation is allowed under Rule 502?
Under Rule 502, general solicitation is not permitted, but you can still bring the offering to anyone with whom you already have a relationship -- i.e. through people within your network. In addition, new SEC rules do allow for activities that could be considered general solicitation, provided that all purchasers are accredited advisors.