Regulation D
SEC rules (17 C.F.R. §§ 230.500-230.508) providing safe-harbor exemptions from securities registration for private offerings. Three principal exemptions: Rule 504 (limited offerings up to $10M), Rule 506(b) (unlimited amount; up to 35 non-accredited investors plus unlimited accredited; no general solicitation), Rule 506(c) (unlimited amount; accredited investors only with verification; general solicitation permitted). Most U.S. private capital raising relies on Rule 506.
Regulation D is the SEC's principal safe-harbor framework for private securities offerings, exempting qualifying transactions from the registration requirements of the Securities Act of 1933. Most U.S. private capital raising relies on Regulation D; the rules establish predictable parameters for issuers to raise capital from investors without the cost and disclosure burdens of registered public offerings. Three principal exemptions: Rule 504 (limited offerings), Rule 506(b) (unlimited amount, no general solicitation), Rule 506(c) (unlimited amount, general solicitation permitted with accredited-only investors).
Rule 504, limited offerings
Rule 504 permits offerings up to $10 million in any 12-month period with significant flexibility: no investor sophistication requirements; no specific federal disclosure requirements; general solicitation permitted in some circumstances (with state-law restrictions). The trade-off: state-law registration requirements remain, Rule 504 securities are NOT "covered securities" preempting state registration. Rule 504 is most useful for small offerings in single state or limited number of states.
Rule 506(b), the workhorse
Rule 506(b) is the most commonly used Reg D exemption: (1) no general solicitation; (2) up to 35 non-accredited investors plus unlimited accredited; (3) sophistication requirement for non-accredited, issuer must reasonably believe each non-accredited investor has knowledge and experience to evaluate the investment; (4) disclosure requirements, if any non-accredited investors, specific disclosure required (typically PPM); (5) Form D filing within 15 days of first sale; (6) covered securities, preempts state registration. Most issuers limit to accredited-only to avoid the non-accredited disclosure requirements.
Rule 506(c), general solicitation permitted
Rule 506(c), added by the JOBS Act in 2013, permits general solicitation but with stricter investor requirements: (1) all purchasers must be accredited investors; (2) issuer must take reasonable steps to verify accredited status, self-certification is insufficient; (3) unlimited offering amount; (4) covered securities; (5) Form D filing required. Verification methods: tax returns, financial statements, third-party confirmation from broker-dealer/RIA/attorney/CPA, or third-party verification services. The general solicitation flexibility is valuable for online offerings, demo days, and broad marketing, but the verification burden is meaningful.
Form D filing
Issuers using Reg D must file Form D with the SEC within 15 days of the first sale of securities. Form D includes issuer information, offering details (rule used, amount, types of investors), related persons, and certification. Form D is filed electronically through EDGAR. Failure to file timely does not by itself void the exemption but signals non-compliance. Most states require parallel notice filings within similar timeframes.
Bad Actor disqualification
Rule 506(d) "bad actor" disqualification prevents reliance on Rule 506 by issuers where covered persons (issuer, directors, officers, 20%+ beneficial owners, GPs of pooled investment funds, certain promoters and compensated solicitors) have specified disqualifying events: criminal convictions related to securities; court injunctions; SEC disciplinary orders; suspensions/expulsions from SROs. Disqualification is forward-looking only, does not apply to pre-Sept. 23, 2013 events but requires written disclosure. Bad actor checks are critical compliance step before Reg D offerings.
Rule 506(b) vs. 506(c) trade-off
The choice: (1) 506(b), no general solicitation but self-certification of accredited status acceptable; up to 35 non-accredited; works well for relationship-driven offerings to known investors; (2) 506(c), general solicitation permitted (online marketing, demo days, public communications) but accredited-only with verification burden; works well for broader marketing and online offerings.
For Texas issuers raising private capital, Reg D is foundational. Best practice: (1) determine which Reg D rule fits, most use 506(b); 506(c) for broader marketing; 504 for small offerings; (2) for 506(b), prepare PPM if any non-accredited investors will be included, typically simpler to limit to accredited only; (3) for 506(c), implement verification process; (4) conduct bad actor checks on all covered persons before offering; (5) file Form D within 15 days of first sale; (6) coordinate state notice filings; (7) maintain documentation of investor qualification. Common pitfall: issuers conducting general solicitation in 506(b) offerings without recognizing the risk, investors learn about the offering through public channels, voiding the 506(b) exemption.