What is Regulation D (Reg D)

Regulation D (Reg D) is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.

BREAKING DOWN Regulation D (Reg D)

Reg D offerings are advantageous to any private company or entrepreneur because they allow an entity to obtain funding faster and to avoid the costs associated with a public offering. Within the regulation are directives that, based on which rules are applied, may allow offerings to be openly solicited to prospective investors in their network.

Even if the transaction only involves one or two investors, the company or entrepreneur wanting to raise capital still needs to provide the proper framework and disclosure documentation; however, these requirements are significantly less than what is required for a public offering. Companies must still electronically file a Form D, which includes names and addresses of their executives and directors and some details regarding the offering, with the SEC after the first securities are sold. Form D contains limited information rather than an exhaustive registration of the offering.

Requirements for Regulation D

According to rules published in the Federal Register, transactions that fall under Reg D are not exempt from antifraud, civil liability, or other provisions of federal securities laws. The issuers of Reg D offerings are still obligated to provide additional material information that may be necessary.

Reg D also does not eliminate the need for compliance with applicable state laws relating to the offer and sale of securities. State regulations, where Reg D has been adopted, may include filings of notices of sales and the registration of individuals who receive compensation in connection with the sale and offer of securities. State administrative orders and judgments may still disqualify issuers and others affiliated with offerings.

Among the other requirements of Reg D, the issuer of the securities must provide in a reasonable time in advance of the sale written disclosures of any prior “bad actor” events. If such information is not provided, the issuer can prove they are not at fault if they establish that they were not aware nor could have become aware of the undisclosed information.

The benefits of Reg D are only available to the issuer of the securities, not to affiliates of the issuer or to any other individual for resale of the securities. Exemptions offered under Reg D only apply to the transactions, not to the securities themselves.