The following provides a brief review of the SEC Rules defining the manner of offering private Securities to Accredited Investors

  • Regulation D was established by the SEC in the 1980’s to define, more specifically, a manner of privately offering Securities.  Most companies issuing private Securities do so by following one of the Rules within Regulation D.   
  • Rule 501 created the Accredited Investor definition for Investor eligibility for Rule 505 and Rule 506 Regulation D Private Placements. The Accredited Investor definition includes high net worth individuals whose income exceeds either $200,000/year (for single persons) or $300,000/year (for married couples) or a net worth exceeding $1,000,000 (excluding the value of their principal residence).  There are other definitions under Rule 501 which designate qualifying institutions or investment companies.
  • According to the SEC, “[Rule 506] is by far the most widely used Regulation D exemption, accounting for an estimated 90 to 95% of all Regulation D Offerings and the overwhelming majority of capital raised in transactions under Regulation D.”
  • Rule 506(b) of Regulation D enables Issuers to issue an unlimited amount of Securities so long as no more than 35 non-accredited Investors participate in the Offering.
  • Investors participating in a Rule 506(b) Private Placement must complete an “Accredited Investor Questionnaire” (see “Accredited Investor Questionnaire”).
  • IMPORTANTLY – All Accredited Investors participating in a 506(b) Private Placement may self-verify that they qualify as Accredited Investors. 
  • Virtually any type of Security can be offered to Investors through a Regulation D Private Placement including Promissory Notes or equity interests (e.g.  common stock, preferred stock or membership interest in a Limited Liability Company).
  • Regulation D Private Placements are subject to all other federal and state regulations regarding misrepresentation or fraud.
  • Form D must be filed with the SEC and in each state the Securities are sold under Regulation D within 15 days of the commencement of the Offering.

For more information about Private Placement regulations, please turn to “Regulation D, Rule 506(c) Private Placements.”