private placement under regulation d
Understanding Private Placements
You may be looking to raise capital for your company by offering equity to a certain group of investors (can be friends, family, associates etc) as opposed to a public offering. If so, this type of securities offering is considered a private placement exempt from SEC registration if the issuance conforms to one of the exemptions set forth in the Securities Act of 1933 and discussed below.
Private offerings are issued under Regulation D of the Securities Act of 1933, the SEC requires stock offerings to be registered unless offered in compliance with a Regulation D exemption. Reg D has three exemption levels known as Rules 504, 505 and 506. They primarily apply to the amount of the offering. Most private offerings are made under Rule 506. These exempt offerings or private placements are used to raise capital for startups, real estate syndications, and film production projects to name a few.
What is the Regulation D exemption for private placements?
Reg D requires that you receive a private placement memorandum disclosing the company business and potential risks associated with the company and the value of the investment. Also required is a subscription agreement and an accredited investor questionnaire.
Companies conducting an private placement offering under Rule 506(b) can raise an unlimited amount of money and can sell securities to an unlimited number of accredited investors. An private offering under Rule 506(b) is subject to to the following requirements as stated on SEC's website:
(i) no general solicitation or advertising to market the securities;
(ii) cannot sell securities to more than 35 non-accredited investors;
(ii) give non-accredited investors specified disclosure documents that generally contain the same information as provided in registered offerings (the company is not required to provide specified disclosure documents to accredited investors, but, if it does provide information to accredited investors, it must also make this information available to the non-accredited investors as well);
(iii) be available to answer questions from prospective purchasers who are non-accredited investors; and;
(iv) provide financial statement information
Under Rule 506(c), issuers may offer securities through means of general solicitation, provided that: (i) all purchasers in the offering are accredited investors, (ii) the issuer takes reasonable steps to verify their accredited investor status, and (iii) certain other conditions in Regulation D are satisfied.
In addition to Reg D private placements, Regulation Crowdfunding created by the JOBS Act is becoming more popular. If you want to know more about making an offering to raise capital for your real estate syndication, startup, or project, contact us!