Regulation D Rule 504, Rule 506(b), Rule 506(c) Offering Exemptions

Securities offerings must be registered with the Securities and Exchange Commission (“SEC”) or exempt from registration. Private placements are unregistered, non-public securities offerings that rely on an available exemption from registration. Unregistered offerings of securities must rely on an exemption from registration under either Sections 3 or 4 of the Securities Act of 1933 (the “Securities Act”). Most private offerings, however, are sold pursuant to three “safe harbor” rules promulgated under the Securities Act; Regulation D, Rules 504, 506(b), and 506(c). These rules provide issuers with a clearer and more objective set of requirements for which their offerings may qualify for exemption from registration.

Regulation D provides for three types of securities offerings that can be used by private or publicly traded companies. The Regulation D exemptions can also be used by issuers conducting initial or direct public offerings as part of the going public process. The most commonly used exemption from SEC registration is Rule 506© of Regulation D. This blog post outlines each of the exemptions provided by Regulation D. 

Rule 504

Provides an exemption from registration requirements for issuers that offer and sell up to $10 million of securities in any 12-month period.

• • May use general solicitation under certain conditions.
  • No limit on non-accredited investors.
  • No specific disclosure requirement for non-accredited investors.

Rule 506(b)

Rule 506(b) provides an exemption to issuers under the following conditions:

• • No general solicitation.
  • Offer to an unlimited number of accredited investors and up to 35 non-accredited purchasers; all investors must be sophisticated.
  • Disclosure requirement for non-accredited investors.
  • The issuer must be available to answer any questions from prospective purchasers.
  • No limit on the amount raised.
  • Most commonly used exemption.

Rule 506(c)

Rule 506(c) allows an issuer to raise an unlimited amount of capital using solicitation and advertising if the following requirements are met:

• • All purchasers must be accredited investors.
  • The issuer must take reasonable steps to verify that the investors are accredited.
  • No limit on the amount raised.

All three Rules (504, 506(b) and 506(c)) are subject to “bad actor” disqualification provisions (506(d) and (e) of Regulation D), and information provided by the issuer must not contain false or misleading statements and omissions that may be material to investors. Further, issuers relying on a Regulation D exemption must file a “Form D” with the SEC via EDGAR.

To speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. 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 Attorneys
Brenda Hamilton, Securities Attorney
200 E Palmetto Rd, Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com