Understanding Reg D Offerings: A Complete Guide

Regulation D (Reg D) provides exemptions from SEC registration requirements, allowing companies to raise capital without the extensive disclosure requirements of a public offering. This guide will help you understand the key aspects of Reg D offerings and how to use them effectively.

What is Regulation D?

Regulation D consists of several rules that provide exemptions from the registration requirements of the Securities Act of 1933. These exemptions allow companies to raise capital from investors without going through the costly and time-consuming process of registering with the SEC.

Key Point

Reg D offerings are one of the most popular ways for private companies to raise capital from accredited investors, with over $2 trillion raised annually.

The Three Main Rules

Rule 504

Rule 504 allows companies to raise up to $10 million in a 12-month period. This rule has fewer restrictions but is less commonly used for larger raises.

Rule 506(b)

Rule 506(b) is one of the most popular exemptions and offers several advantages:

No general solicitation: You cannot advertise or publicly market the offering
Up to 35 non-accredited investors: You can include sophisticated but non-accredited investors
Self-certification: Investors can self-certify their accredited status
No cap on raise amount: Raise as much capital as you need

Rule 506(c)

Rule 506(c), introduced by the JOBS Act in 2013, offers different trade-offs:

General solicitation allowed: You can advertise and market publicly
Accredited investors only: All investors must be accredited
Verification required: You must take reasonable steps to verify accredited status
No cap on raise amount: No limit on how much you can raise

Pro Tip

Choose 506(b) if you have an existing network of investors. Choose 506(c) if you need to reach new investors through marketing and advertising.

Filing Requirements

All Reg D offerings require filing Form D with the SEC within 15 days of the first sale of securities. Additionally, you may need to file in each state where you have investors (blue sky filings).

Form D Contents

Form D requires information about:

The company and its principals
The type of securities being offered
The amount being raised
The exemption being claimed
Basic information about investors

State Filing Requirements

Most states require notification filings when you sell securities to their residents. Requirements vary by state, with most states charging a flat fee, while some charge a fee based on the amount of securities expected to sold in a state up capped at a certain amount.

Important

Failure to file required state notices can result in penalties and may affect your ability to raise capital in those states in the future.

Common Mistakes to Avoid

Missing filing deadlines: File Form D within 15 days of first sale
Inadequate investor verification: For 506(c), document your verification process
Ignoring state filings: Each state has its own requirements
Poor record keeping: Maintain detailed records of all investor communications
Improper general solicitation: Under 506(b), avoid any public advertising

Next Steps

Ready to start your Reg D offering? Here are some recommended next steps:

Determine your target raise amount and timeline
Choose between 506(b) and 506(c) based on your investor network and marketing needs
Prepare your offering documents including PPM, subscription agreement, and operating agreement
Set up your investor verification process if using 506(c)
Plan for compliance including Form D and state filings

Need help estimating the costs of your Reg D offering? Use our Fundraise Cost Calculator to get a detailed breakdown.