Hello,
Pursuant to our conversation, I am forwarding to you the following information on Regulation D.
As you can see, most of this information is available from the SEC website at www.sec.gov.
For general information on Regulation D, please see: sec.gov
For a copy of Regulation D, please see: sec.gov
For an article on Reg. D, please see:
<<Beach Article dated May2002.doc0.zip>>
If you cannot open the above document, please try this document in another format:
<<Beach Article dated May2002.doc0.zip>> <<Beach Article dated May2002.doc>>
I. Regulation D
For every sale of securities, the issuer must comply with both the federal SEC regulations, as well as the respective state regulations of each state where the securities are sold. For information on the various state regulations, see the following website: www.nasaa.org and click on "Find Regulator" at the far left hand column for a hyperlink to each state regulators' web page.
Regulation D is the set of rules promulgated by the SEC concerning private placements. Here are some helpful references for you on Regulation D.
In general, please see our small business web page at: sec.gov
For a summary of our rules concerning raising capital for small businesses, including a discussion of the exemptions to SEC regulation under Regulations D and A, see: sec.gov
For Regulation D, including the definition of an accredited investor in Rule 501(a), see: sec.gov
For Form D, see: sec.gov
An issuer may rely upon the Regulation D or A exemption, regardless of the legal form of organization adopted, such as a partnership, Chapter C or S corporation or LLC corporation.
Rule 503 of Regulation D requires an issuer making sales pursuant to Regulation D to file with the SEC five copies of a notice of sales on Form D with the SEC headquarters office in Washington, D.C. The Form D must be filed within 15 days after the first sale of securities. The filing requirements for Form D have been revised so that the Form D no longer must be amended or updated every six months, nor filed at the closing of an offering.
A Form D may not be submitted to the SEC in electronic form where the issuer of the securities is not subject to the periodic filing requirements under the Securities Exchange Act of 1934. Only issuers that file periodic reports with the SEC (i.e. annual and quarterly reports) may submit the Form D with the SEC electronically. All other issuers must submit the Form D in paper copy.
For Regulation A offerings, seven copies of the Form 1-A offering statement, at least one of which must be manually signed, shall be filed with the SEC's main office in Washington, D.C. Regulation A offerings may not be filed electronically with the SEC.
The Form 1-A is the disclosure document to be filed with the SEC in connection with a Regulation A offering. See: <http://www.sec.gov/divisions/corpfin/forms/1-a.htm>
For the set of rules governing Regulation A offerings, see: <http://www.sec.gov/divisions/corpfin/forms/rega.htm>
There is no filing fee with the SEC for either a Regulation A or D offering.
For a general article on the use of the Form U-7, a required filing in many states pursuant to state securities regulations, and the coordination between the state and the federal regulations, see the following attached article:
<<MakensBlueSkyII.rtf>>
A link to the Form U-7 can be found at: <http://www.nasaa.org/nasaa/corpfin/scor_overview.asp>
II. Rule 144 “Restricted Securities” Applies to all Rule 505 and 506 Reg. D Offerings
All securities sold in reliance upon Rules 505 and 506 are considered "restricted securities" under Rule 144 which means briefly that such securities can not be sold for one year and are subject to volume restrictions on any sales made in the second year. For a copy of Rule 144, see the SEC website at: sec.gov
Rule 144 provides an exemption and permits the public resale of restricted or control securities if a number of conditions are met. For information regarding Rule 144, please see the SEC website at: sec.gov.
For information on Form 144 and when a holder of restricted securities must file a Form 144 with the SEC, please see: sec.gov.
Although the SEC does not require that the Form 144 be sent electronically to the SEC’s EDGAR database, some filers choose to do so.
There is no filing fee for filing either a Form D or Form 144 with the SEC.
III. Rule 506 Offerings and offerings exceeding $5 million in a 12 month period.
The article by Mary Beach gives a good presentation of all of the various requirements of Regulation D offerings. Rule 506 has no ceiling in the amount that can be raised in any 12 month period. Rule 506 requires, however, that sales be made to no more than 35 non-accredited investors. And each of these 35 non-accredited investors must qualify as sophisticated purchasers, as required in subparagraph (b)(2)(ii) of Rule 506. No general solicitation or advertising may be used in connection with a Rule 506 offering.
If sales are made to any non-accredited investors in a Rule 505 or 506 offering, Rule 502(b) of Regulation D requires that the issuer deliver to the non-accredited investor a disclosure document. If sales are only made to accredited investors in a Rule 505 or 506 offering, Rule 502(b) does not require that a disclosure document be delivered. Section 18 of the Securities Act of 1933 treats all sales made in reliance on Rule 506 as "covered securities" so that the issuer need not have to comply with state registration requirements for the offering. Such requirements are preempted by federal law. Unlike Rule 506 offerings, Rule 505 offerings are not covered by Section 18.
To the extent you are considering selling more than $5 million of securities within a 12 month period, your only alternatives are Rule 506, a Section 4(2) private placement, an intra-state offering, or a registered public offering. Section 4(2) is the statutory exemption upon which Rule 506 relies upon. Section 4(2) is a non-public offering. Rule 506 provides clear guidelines on how to conduct a compliant Section 4(2) offering. Therefore, I suggest using Rule 506 as opposed to relying upon Section 4(2).
An intra-state offering made in reliance upon Section 3(a)(11) requires that all securities be sold to residents of a single state. If you are considering this offering exemption, you should refer to Rule 147. For a copy of Rule 147, see the SEC website at: law.uc.edu. It is very difficult to assure that all the securities sold in a Section 3(a)(11) offering come to rest with residents all of the same state. So this offering exemption is seldom used.
Finally, there is a registered public offering with the SEC. The Form SB-2 is used by small business issuers. For a copy of Form SB-2, see: sec.gov.
For the set of disclosure guidelines to follow in preparing a Form SB-2, see Regulation S-B at: sec.gov.
There are many helpful commercial publications written for non-lawyers on the regulatory framework of the capital raising process for small businesses. For example, a 300 page paper-back book written for non-lawyers on raising capital that can be obtained via Amazon.com or in any book store is the following: "Going Public" by Frederick D. Lipman.
I strongly recommend that you contact a securities lawyer before offering any securities. As you can see, the rules can be very complicated and you should seek professional guidance before engaging in any selling efforts.
If you have any questions regarding this material, please contact me at (202) 551-3261.
Regards,
Anthony Barone 202.551.3261
Special Counsel
Office of Small Business Policy
Division of Corporation Finance
U.S. Securities and Exchange Commission
Washington, DC
E-mail: BaroneA@sec.gov
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