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Regulation D
Regulation D (Reg D) is a provision under the U.S. Securities and Exchange Commission (SEC) that allows companies to raise capital through the sale of equity or debt securities without having to register the securities with the SEC. This provision is important for private companies and startups as it simplifies the process of raising funds.
Two commonly used rules under Regulation D are 506(b) and 506(c), which have distinct features:
Rule 506(b)
Pre-existing Relationships: Offers under this rule can only be made to investors with whom the issuer has a pre-existing substantive relationship.
Accredited Investors: The securities can be sold to an unlimited number of accredited investors and up to 35 non-accredited investors who meet certain sophistication requirements.
No General Solicitation: The issuer may not use general solicitation or advertising to market the securities.
Rule 506(c)
Accredited Investors Only: All investors must be accredited, and the issuer must take reasonable steps to verify that investors are accredited, which might include reviewing financial statements, tax returns, or obtaining written confirmation from a lawyer, CPA, or registered investment advisor.
General Solicitation Allowed: Unlike Rule 506(b), Rule 506(c) allows issuers to broadly solicit and advertise the offering, provided that all the investors in the offering are verified as accredited.
