Question
What is Regulation D?
Answer
Regulation D is a series of federal securities exemptions that allow private companies to raise capital without registering securities with the Securities and Exchange Commission. Most Regulation D offerings are conducted under Rules 506(b) or 506(c) and are among the most widely used capital raising exemptions in the United States.
Executive Summary
Regulation D, commonly called Reg D, is the workhorse of private capital formation in the United States.
Every year, companies raise trillions of dollars through Regulation D offerings. Startups, private funds, SPVs, real estate companies, operating businesses, and mature private companies all rely on Reg D to raise capital from investors without conducting a public offering.
Regulation D contains several exemptions, but the most important are Rule 506(b) and Rule 506(c).
Rule 506(b) allows issuers to raise an unlimited amount of money from accredited investors and a limited number of sophisticated non-accredited investors. However, issuers generally cannot publicly advertise or engage in general solicitation.
Rule 506(c) also permits unlimited capital raises but allows issuers to publicly advertise and generally solicit investors. In exchange for this flexibility, all purchasers must be accredited investors, and the issuer must take reasonable steps to verify accredited investor status.
Regulation D also includes Rule 504, which is generally used less frequently and provides a separate exemption with different limitations and requirements.
Most Regulation D offerings require the filing of Form D with the SEC and compliance with applicable state notice filings, often referred to as Blue Sky filings.
Because Regulation D offerings are exempt from SEC registration, they are often faster and less expensive than registered offerings. However, the exemptions are technical and require careful compliance with federal and state securities laws.
For many startups and private companies, Regulation D is the first securities exemption they encounter and remains the most important capital raising tool throughout the life of the company.
Key Takeaways
Regulation D:
• Allows companies to raise capital without SEC registration.
• Includes Rule 504, Rule 506(b), and Rule 506(c).
• Is the most widely used securities exemption in the United States.
• Permits unlimited raises under Rules 506(b) and 506(c).
• Often requires Form D and state Blue Sky filings.
• Frequently involves accredited investors.
• Is used by startups, SPVs, private funds, operating businesses, and real estate companies.
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Transcript
Regulation D is a series of federal securities exemptions that allow private companies to raise capital without registering securities with the Securities and Exchange Commission.
If you are a startup founder, private fund manager, SPV sponsor, or business owner seeking investors, there is a very good chance you will encounter Regulation D.
In fact, Regulation D is the most widely used securities exemption in the United States.
The two most important exemptions are Rule 506(b) and Rule 506(c).
Rule 506(b) permits companies to raise an unlimited amount of capital from accredited investors and a limited number of sophisticated non-accredited investors.
However, there is an important restriction.
You generally cannot advertise the offering publicly.
That means no public marketing campaigns, no social media solicitations, and no general advertising.
Rule 506(c) works differently.
Rule 506(c) permits issuers to publicly advertise and generally solicit investors.
Companies may market their offerings online, through social media, podcasts, conferences, websites, and other public channels.
But there is a tradeoff.
Every investor must be an accredited investor.
And the company must take reasonable steps to verify accredited investor status.
Regulation D also includes Rule 504, which is a separate exemption with different requirements and limitations.
Most Regulation D offerings require the filing of Form D with the SEC and state securities notice filings commonly called Blue Sky filings.
One of the reasons Regulation D is so popular is that it is generally faster and less expensive than registered offerings.
But while the exemption avoids SEC registration, it does not avoid securities law.
Companies still must comply with anti-fraud rules, disclosure obligations, and state filing requirements.
The key takeaway is simple:
Regulation D is the foundation of private capital formation in the United States and remains the most important securities exemption for startups, private funds, SPVs, and private companies.
Frequently Asked Questions
What is Rule 506(b)?
Rule 506(b) is a Regulation D exemption that permits unlimited capital raises but generally prohibits general solicitation or public advertising.
What is Rule 506(c)?
Rule 506(c) permits issuers to publicly advertise offerings, but all investors must be accredited investors and the issuer must verify accredited investor status.
What is an accredited investor?
An accredited investor is an investor who meets certain income, net worth, or professional certification requirements established by the SEC.
What is Form D?
Form D is the notice filing generally submitted to the SEC after the first sale of securities in a Regulation D offering.
What are Blue Sky filings?
Blue Sky filings are state securities notice filings that are often required after securities are sold within a state.
Is Regulation D better than Regulation Crowdfunding?
It depends.
Regulation D is often faster and less expensive, but Regulation Crowdfunding permits participation by non-accredited investors and may be better suited for companies with customers or community investors.
Related Articles
• What Is Regulation Crowdfunding?
• What Is Regulation A?
• What Is Rule 506(b)?
• What Is Rule 506(c)?
• What Is An Accredited Investor?
• What Is Form D?
• What Are Blue Sky Filings?
• What Is An SPV?
• What Is A Private Fund?
• Reg D vs Reg CF
• Reg D vs Reg A
Contact Kendall
Have questions about Regulation Crowdfunding, Regulation A, Regulation D, startup fundraising, private funds, SPVs, investor relations, or securities law?
Contact Kendall Almerico at almericolaw@gmail.com.
Kendall is a securities attorney who has represented startups, private funds, funding portals, broker-dealers, corporations, LLCs, and issuers in Regulation Crowdfunding, Regulation A, and Regulation D offerings for more than three decades.