Regulation D—Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933
Regulation D relates to transactions exempted from the registration requirements of section 5 of the Securities Act of 1933 (the Act) (15 U.S.C.77a et seq., as amended).
Such transactions are not exempt from the antifraud, civil liability, or other provisions of the federal securities laws.
Regulation D provides an exemption only for the transactions in which the securities are offered or sold by the issuer, not for the securities themselves.
The provisions of this paragraph (g), do not apply if the issuer elects to rely solely on Regulation D for offers or sales to persons made outside the United States.
(a) Accredited investor:
Any bank as defined in section 3(a)(2) of the Act,
Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
Any organization described in section 501(c)(3) of the Internal Revenue Code, with total assets in excess of $5,000,000;
Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer
Any natural person whose individual net worth, or joint net worth with that person's spouse, exceeds $1,000,000.
Any natural person who had an individual income in excess of $200,000 in each of the two most recent years
Any trust, with total assets in excess of $5,000,000,
Any entity in which all of the equity owners are accredited investors.
§230.502 General conditions to be met
( a) The following factors should be considered in determining whether offers and sales should be integrated for purposes of the exemptions under Regulation D:
(a) Whether the sales are part of a single plan of financing;
(b) Whether the sales involve issuance of the same class of securities;
(c) Whether the sales have been made at or about the same time;
(d) Whether the same type of consideration is being received; and
(e) Whether the sales are made for the same general purpose.
( b ) Information requirements. If the issuer sells securities under §230.506(b) to any purchaser that is not an accredited investor, the issuer shall furnish the following information:
(A) Non-financial statement information. If the issuer is eligible to use Regulation A (§230.251-263), the same kind of information as would be required in Part II of Form 1-A (§239.90 of this chapter). If the issuer is not eligible to use Regulation A, the same kind of information as required in Part I of a registration statement filed under the Securities Act on the form that the issuer would be entitled to use.
(B) Financial statement information—(1) Offerings up to $2,000,000. The information required in Article 8 of Regulation S-X (§210.8 of this chapter), except that only the issuer's balance sheet, which shall be dated within 120 days of the start of the offering, must be audited.
Offerings up to $7,500,000. The financial statement information required in Form S-1
Offerings over $7,500,000. The financial statement as would be required in a registration statement filed under the Act on the form that the issuer would be entitled to use.
If the issuer is a foreign private issuer eligible to use Form 20-F the issuer shall disclose the same kind of information required to be included in a registration statement filed under the Act on the form that the issuer would be entitled to use.
The issuer's annual report to shareholders for the most recent fiscal year, if such annual report meets the requirements of Rules 14a-3 or 14c-3 under the Exchange Act (§240.14a-3 or §240.14c-3 of this chapter)
A brief description of the securities being offered,
The use of the proceeds from the offering,
And any material changes in the issuer's affairs that are not disclosed in the documents furnished.
Exhibits required to be filed with the Commission as part of a registration statement or report, other than an annual report to shareholders or parts of that report incorporated by reference in a Form 10-K report, need not be furnished to each purchaser that is not an accredited investor.
The issuer shall furnish to the purchaser a brief description in writing of any material written information concerning the offering that has been provided by the issuer to any accredited investor but not previously delivered to such unaccredited purchaser.
The issuer shall also make available to each purchaser at a reasonable time prior to his purchase of securities the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information
For business combinations or exchange offers, in addition to information required by Form S-4, the issuer shall provide to each purchaser, written information about any terms or arrangements of the proposed transactions that are materially different from those for all other security holders.
At a reasonable time prior to the sale of securities, the issuer shall advise the purchaser of the limitations on resale
( c ) Limitation on manner of offering.
Neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:
Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio;
Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising
( d ) Limitations on resale. Securities acquired in a transaction under Regulation D cannot be resold without registration under the Act or an exemption therefrom. The issuer shall demonstrate the following:
Reasonable inquiry to determine if the purchaser is acquiring the securities for himself or for other persons;
Written disclosure to each purchaser prior to sale that the securities have not been registered under the Act and, therefore, cannot be resold unless they are registered under the Act or unless an exemption from registration is available
Placement of a legend on the certificate or other document that evidences the securities stating that the securities have not been registered under the Act
§230.503 Filing of notice of sales
An issuer offering or selling securities must file with the Commission a notice of sales containing the information required by Form D (17 CFR 239.500) for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering, unless the end of that period falls on a Saturday, Sunday or holiday, in which case the due date would be the first business day following.
The address or relationship to the issuer of a related person identified in response to Item 3 of the notice of sales on Form D;
An issuer's revenues or aggregate net asset value;
The minimum investment amount,
The total offering amount,
The amount of securities sold in the offering or the amount remaining to be sold;
The number of non-accredited investors who have invested in the offering
The total number of investors who have invested in the offering; or
The amount of sales commissions, finders' fees or use of proceeds for payments to executive officers, directors or promoters
current information in response to all requirements of the notice of sales on Form D regardless of why the amendment is filed
How notice of sales on Form D must be filed and signed
§230.504 Exemption for limited offerings and sales of securities not exceeding $5,000,000
Exemption. Offers and sales of securities by an issuer that is not:
Subject to the reporting requirements of section 13 or 15(d) of the Exchange Act,;
An investment company; or
A development stage company that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person,
2) Conditions to be met
To qualify for exemption under this §230.504, offers and sales must satisfy the terms and conditions of §§230.501 and 230.502 (a), (c) and (d),
The aggregate offering price for an offering of securities under this §230.504, as defined in §230.501(c), shall not exceed $5,000,000
§230.506 Exemption for limited offers and sales without regard to dollar amount of offering
Offers and sales of securities by an issuer that satisfy the conditions in paragraph (b) or (c) of this section shall be deemed to be transactions not involving any public offering within the meaning of section 4(a)(2) of the Act.
There are no more than or the issuer reasonably believes that there are no more than 35 purchasers of securities from the issuer in any offering under this section.
Each purchaser who is not an accredited investor either alone or with his purchaser representative(s) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment
The issuer shall take reasonable steps to verify that purchasers of securities sold in any offering under paragraph (c) of this section are accredited investors.
Obtaining a written confirmation from one of the following persons or entities that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that such purchaser is an accredited investor:
A registered broker-dealer;
An investment adviser registered with the Securities and Exchange Commission;
A licensed attorney who is in good standing under the laws of the jurisdictions in which he or she is admitted to practice law; or
A certified public accountant who is duly registered and in good standing under the laws of the place of his or her residence or principal office.
No exemption under this section shall be available for a sale of securities
“Bad Actor” disqualification:
Has been convicted, within ten years before such sale
In connection with the purchase or sale of any security
Involving the making of any false filing with the Commission; or
Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities;
§230.508 Insignificant deviations from a term, condition or requirement of Regulation D
A failure to comply with a term, condition or requirement of §230.504 or §230.506 will not result in the loss of the exemption from the requirements of section 5 of the Act for any offer or sale to a particular individual or entity, if the person relying on the exemption shows:
The failure to comply did not pertain to a term, condition or requirement directly intended to protect that particular individual or entity; and
The failure to comply was insignificant with respect to the offering as a whole
A good faith and reasonable attempt was made to comply with all applicable terms, conditions and requirements