Regulation D

For most entrepreneurs, the best vehicle to accomplish initial equity financing under an exemption is through the use of a Private Placement Memorandum (PPM) under Regulation D (Reg D), which is a limited offer and sale of their company’s stock, or securities, without registration under the Federal Securities Act of 1933.

Some risks continue under Reg D, but compliance is significantly easier than before Reg D. A major, major point is that by complying with Reg D, it provides the company, its officers, and its directors with an insurance policy of sorts regarding disclosure.

There Are Six Basic Rules
Regulation D consists of six basic rules. The first three are concerned with definitions, conditions, and notification. Rule 501 covers the definitions of the various terms used in the rules. Rule 502 sets forth the conditions, limitations, and information requirements for the exemptions in Rules 504, 505, and 506. Rule 503 contains the SEC notification requirements.

The last three rules (504, 505, and 506) deal with the specifics of raising money under Reg D. Rule 504 generally pertains to securities sales up to $1 million. Rule 505 applies to offerings from $1 million to $5 million. Rule 506 is for securities offerings exceeding $5 million. (A complete review of all aspects of Reg D is contained in our book Going Public” – Everything You Need to Know to Take Your Company Public.)