Regulation D is a series of transactional, safe harbor exemptions from the registration requirements under the Securities Act of 1933.  Generally speaking, when a business owner wants to raise capital from passive investors, the offer and sale of a security will often be involved.  Both federal and state law regulate the offer and sale of securities, and those laws impose severe penalties for violations—civil, administrative, and criminal.  There are three types of securities offerings:  (i) public offerings registered with the Securities and Exchange Commission and the states, (ii) private offerings (also referred to as exempt offerings because they are structured to qualify for an available exemption provided by statute, rule, or regulation), and (iii) illegal offerings.  For most small businesses trying to raise capital, the second category is the place to be.

Regulation D is a wonderful resource for entrepreneurs and small business owners because it provides a relatively efficient and cost-effective mechanism to raise capital without having to undertake the time-consuming and incredibly expensive SEC registration process (never mind the state registration process).

The most commonly used Regulation D exemption is Rule 506, which was split into two separate, but related, exemptions in September 2013.   In a Rule 506 offering, a company can raise an unlimited amount of capital from an unlimited number of accredited investors and, under the new Rule 506(c) exemption, can promote its offering through public advertising and general solicitation, subject to a variety of conditions.  There are several articles and presentations posted elsewhere on the Perkins Law website addressing Regulation D offering and compliance issues.  Contact us to discuss how to navigate the Regulation D offering process to raise capital for your business.

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