Regulation D
Regulation D is a set of SEC rules that provides exemptions and safe harbors from Securities Act registration for qualifying securities offerings.
Regulation D is a framework, not one exemption
“Reg D” is often used as if it describes a single type of deal. It does not.
Regulation D contains multiple rules. For most investor analysis, the critical distinction is among Rule 504, Rule 506(b) and Rule 506(c).[1]
Rule 504
Rule 504 can exempt offerings of up to $10 million in a 12-month period, subject to its conditions.[1]
It can be useful for smaller capital raises. General solicitation can be permitted only in specified circumstances, and state securities-law requirements can remain important.
There is no universal accredited-investor-only requirement under Rule 504.
Rule 506(b)
Rule 506(b) has no federal dollar cap on the offering amount.[1]
The issuer cannot use general solicitation. It may sell to an unlimited number of accredited investors and up to 35 non-accredited purchasers who satisfy the rule's sophistication standard, subject to applicable disclosure and other conditions.[1]
When non-accredited investors participate, specific information requirements become especially important.
Rule 506(c)
Rule 506(c) also has no federal dollar cap, but its distribution rules are very different.
The issuer may broadly solicit and advertise the offering, provided that:
- all purchasers are accredited investors
- the issuer takes reasonable steps to verify accredited status
- the other conditions of the exemption are met[2]
That verification requirement is one of the clearest differences between 506(c) and the ordinary accredited-investor process under 506(b).
Quick comparison
| Feature | Rule 504 | Rule 506(b) | Rule 506(c) |
|---|---|---|---|
| Federal offering cap | $10M / 12 months | None | None |
| General solicitation | Limited circumstances | No | Yes |
| Accredited investors | Permitted | Unlimited | All purchasers |
| Non-accredited purchasers | Permitted under rule conditions | Up to 35 sophisticated purchasers | Not permitted |
| Accredited verification | Depends on structure | No 506(c)-style verification mandate | Reasonable verification steps required |
This is a high-level comparison. The legal conditions are more detailed than the table.
What is Form D?
Issuers relying on Regulation D commonly file Form D, a notice filing containing basic information about the issuer and offering.[1][4]
A Form D filing is not the same thing as SEC review and approval of a registered offering.
It also does not replace investor diligence.
Restricted securities and resale
Securities sold under Rule 506 are restricted securities. That can limit resale and make liquidity materially different from exchange-traded public stock.
An investor should evaluate both:
- whether a resale can legally occur, and
- whether a practical market exists when the investor wants to sell.
Those are not the same question.
“Bad actor” disqualification
Regulation D includes disqualification provisions that can prevent reliance on specified exemptions when covered persons have certain disqualifying events.[1][3]
That is one reason background diligence on management, promoters and other covered participants matters.
Common mistakes
“Reg D means accredited investors only.”
Too broad. Rule 506(c) requires all purchasers to be accredited, while 506(b) and Rule 504 have different structures.
“506(b) and 506(c) are the same except for advertising.”
No. 506(c) also requires all purchasers to be accredited and requires reasonable verification steps.
“Form D means the SEC approved the investment.”
No. It is a notice filing.
“An exemption from registration eliminates fraud rules.”
No. Antifraud provisions continue to apply.
Example
A startup seeking an unlimited raise from accredited investors may use Rule 506(b) without general solicitation or Rule 506(c) with general solicitation if every purchaser is accredited and verification requirements are satisfied.
Professional note
The phrase “Regulation D offering” is not specific enough for serious analysis. Identify the exact rule, who can purchase, whether solicitation is allowed, what verification occurred, what disclosures were delivered and what resale restrictions attach to the security.
Related terms
- Preferred Stock
Preferred stock is an equity security that generally ranks ahead of common stock for dividends and liquidation proceeds, subject to its specific terms.
- Warrant
A warrant is a security or contractual right that generally allows the holder to buy issuer shares at a specified exercise price before expiration.
- Convertible Securities
Convertible securities are commonly bonds, notes or preferred shares that can convert into common stock or another security under specified terms.
- Lock-Up Agreement
A lock-up agreement restricts specified shareholders from selling shares for a stated period after an IPO or other transaction.
- Registration Statement
A registration statement is a filing with the SEC that provides required disclosures when a security or securities offering is registered under federal securities laws.
- Private Placement
A private placement is a non-public offering of securities conducted in reliance on an available exemption from registration under the Securities Act of 1933.
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