A:

The U.S. Securities and Exchange Commission (SEC) has set forth disclosure requirements for private placements, including financial statements and other information. Individual states may also have additional disclosure requirements for private placements. Most private placement offerings are made pursuant to the exemptions of Regulation D. Regulation D allows companies to raise capital by selling securities without having to comply with more stringent SEC requirements. Still, Regulation D does contain a number of disclosure requirements. The main provisions regulating private placements are located in Rules 504 and 506.

Rule 504

Rule 504 requires that a company provide a substantive disclosure document to investors. The disclosure should allow the investor to make an informed investment decision. This generally includes the business of the company, its financial condition, the result of operations, property and management.

Rule 506

This rule governs private placements made to accredited investors. There are no disclosure requirements contained in this rule. Accredited investors have a higher net worth, and the SEC assumes they have sufficient bargaining power to obtain relevant information from the company. Companies still have to comply with the requirements of SEC Rule 10b-5, which prohibits any act or omission resulting in fraud or deceit in the purchase or sale of securities.

Rule 506 also allows sales of securities to non-accredited investors. Companies must provide non-accredited investors with non-financial and specific types of financial statements. These disclosures must be generally the same as those provided in registered offerings. Companies do not gain any substantial relief if they offer securities to non-accredited investors under Rule 506.

RELATED FAQS
  1. IPO versus private placement: What's the difference?

    Understand the differences between private placements and initial public offerings (IPO) that companies use to raise capital ... Read Answer >>
  2. How does private placement affect share price?

    Understand what it means when a company does a private placement, and find out how this typically impacts the share price ... Read Answer >>
  3. Is a private company required to show financial information?

    Understand whether a private company is required to disclose financial information to the public. Learn what is required ... Read Answer >>
  4. How are asset management firms regulated?

    Find out how the asset management industry is regulated and how those regulations fit within the broader scope of financial ... Read Answer >>
Related Articles
  1. Personal Finance

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  2. Investing

    Footnotes: Early Warning Signs For Investors

    These documents hold very important information, but reading them takes skill.
  3. Investing

    An Investor's Checklist To Financial Footnotes

    Footnotes to the financial statements contain very important information, but reading them takes skill.
  4. Taxes

    How A Company Files With The SEC

    Filing with the SEC is not as complicated as you might thing -- just be meticulous about following the steps.
  5. Managing Wealth

    Asset Manager Ethics: Disclosures

    Effective communication and disclosures go a long way towards easing minds and creating a lasting and trusting symbiotic relationship. Here are the four steps to making good disclosures.
  6. Tech

    Could This Fundraising Mechanism Step in For ICOs?

    The recently-formed Institute for Blockchain Innovation has proposed JOBS Act Coin Offering (JCO) as an alternative to ICOs.
  7. Insights

    Understand the SEC Rules on Equity Crowdfunding

    The SEC's adoption of equity crowdfunding rules, initiated under the JOBS Act, enables small investors to invest in companies that show early potential.
  8. Managing Wealth

    How to become an accredited investor

    Accredited investors have more opportunities that non-accredited investors but, surprisingly, there is no set process for becoming one.
  9. Insights

    The SEC: A Brief History Of Regulation

    The SEC has continued to make the market a safer place and to learn from and adapt to new scandals and crises.
  10. Investing

    Charles Schwab: SEC's Proposed Disclosure Form Could Confuse Investors

    Charles Schwab says the disclosure form being proposed by the SEC is too confusing.
RELATED TERMS
  1. Product Placement

    Product placement is a form of advertising in which branded goods ...
  2. Rule 144

    Rule 144 is an SEC rule that sets the conditions under which ...
  3. Pre-IPO Placement

    Pre-IPO placement is when a portion of an initial public offering ...
  4. Regulation Fair Disclosure (Reg FD)

    Regulation Fair Disclosure is a rule to prevent selective disclosure ...
  5. Schedule 14C

    Schedule 14C sets forth certain disclosure requirements for companies ...
  6. Accredited Investor

    Accredited investor has the financial sophistication and capacity ...
Trading Center