What is a Regulation S Offering? Going Public Lawyers

Regulation S Exemption

Foreign private issuers may raise capital in the U.S. by registering an offering registered on a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) or by selling securities that are exempt from the SEC’s registration requirements.  Many foreign issuers are not familiar with the regulations imposed by U.S. securities laws, and so must take significant precautions when offering and selling securities pursuant to an exemption from registration, to ensure compliance with state and federal securities laws.

Foreign private issuers may make private or limited offerings of securities  by relying on exemptions from the registration requirements of the Securities Act.  Foreign issuers going public can rely upon the exemptions provided by Regulation D of the Securities Act as well as Regulation S to obtain the seed shareholders required by FINRA.

Offshore Sales l Regulation S Offerings l Foreign Issuers

Regulation S provides a securities exemption for  offers and sales of securities that occur outside the U.S. Regulation S like Regulation D contains a non-exclusive safe harbor for extraterritorial offers, sales, and resales of securities in Rules 903 and 904 under the Securities Act. If a foreign private issuer’s offering fails to comply with the requirements of Regulation S,  the issuer may rely upon other exemptions from registration.  Securities may also be offered and sold outside the U.S.  pursuant to Regulation S at the same time as those offered and sold pursuant to Regulation D. In such cases, the number of purchasers and the total proceeds raised pursuant to Regulation S are not integrated with those in Regulation D in calculating Regulation D’s offering requirements.

The structure of Regulation S consists of General Conditions applicable to any offshore transaction, followed by an Issuer Safe Harbor and a Resale Safe Harbor.

Regulation S General Conditions l Foreign Private Issuers

In general, an offering may qualify for non-registration pursuant to Regulation S if it meets two conditions:

The offer or sale is made in an “offshore transaction”; and

There are no “directed selling efforts” in the United States.

An Offshore Transaction is defined as one in which:

The offer is not made to a person in the United States; and   Either:

●  At the time the buy order is originated, the buyer is outside the United States, or the seller and any person acting on the seller’s behalf reasonably believe that the buyer is outside the United States; or

For the purposes of the issuer safe harbor, the transaction is executed in, on or through a physical trading floor of an established foreign securities exchange that is located outside the United States; or

For purposes of the resale safe harbor of Regulation S, the transaction is executed in, on or through the facilities of a designated offshore securities market, and neither the seller nor any person acting on his behalf knows that the transaction has been pre-arranged with a buyer in the United States.

Directed Selling Efforts means any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the securities being offered in reliance on Regulation S, including placing an advertisement in a publication “with a general circulation in the United States” that refers to the offering of securities being made in reliance upon Regulation S.

Issuer Safe Harbor l Regulation S l Foreign Private Issuers

The safe harbor of Regulation S contains three categories of offerings, based on the nationality and reporting status of the foreign private issuer, and degree of U.S. market interest in its securities. The three categories have varying levels of procedural safeguards imposed which are designed to assure that the securities offered pursuant to a Regulation S offering are not part of an unregistered distribution of securities in the United States.

Category 1 l Regulation S Safe Harbor

The first issuer safe harbor under Regulation S contains the least restrictive conditions and is for offerings of securities of foreign companies with no substantial U.S. market interest in their securities, securities offered and sold in overseas directed offerings, securities backed by the full faith and credit of a foreign government, and securities offered and sold pursuant to certain employee benefit plans. For offerings in this category, there are no requirements other than the Regulation S

Category 2 l Regulation S Safe Harbor

The second issuer safe harbor under Regulation S applies to offerings that are not eligible for Category 1 and are equity securities of a reporting foreign company, or debt securities of a reporting issuer (either foreign or U.S. domestic) or a non-reporting foreign company. In addition to the Regulation S General Conditions, certain other offering restrictions apply and no offer or sale may be made to a U.S. person or for the account or benefit of a U.S. person (other than a distributor) for a period of 40 days.

Category 3 l Regulation S Safe Harbor

The third issuer safe harbor under Regulation S contains the most restrictive conditions and applies to all securities not eligible for Categories 1 and 2. This includes equity securities of a reporting U.S. domestic issuer, any securities of a non-reporting U.S. domestic issuer, and equity securities of a non-reporting foreign company that has a substantial U.S. market interest in its equity securities. In addition to the Regulation S General Conditions, certain other offering restrictions apply and no offer or sale may be made to a U.S. person or for the account or benefit of a U.S. person (other than a distributor) for the following periods:

Equity securities of non-reporting issuers: one year

Equity securities of reporting issuers: six months

Debt securities: 40 days

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected]uritieslawyer101.com or visit www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com