Important Provisions of Reg-D

May, 2014 by

Are you a private company that’s raising money? Are you an investor investing in securities of a private company? If so, chances are you’re looking to participate in a regular d offering. Regulation D is the most commonly used exemption from securities laws which require that companies register securities with the Securities and Exchange Commission (SEC) prior to selling them. Historically, one generally couldn’t use any form of general solicitation when relying on Reg D. That changed as a result of the Jumpstart Our Business Startups Act (JOBS Act). Though general solicitation of “private” offerings is now legal, there are still certain conditions that must be met. These conditions are set forth in Title II of the JOBS Act and were enacted into law by the SEC on September 23, 2013 as Rule 506(c) of Regulation D.

The Role of Reg-D

As mentioned above, securities are, in most cases, required to be registered with the SEC prior to sales. Regulation D itself is comprised of a number of exemptions that are applicable to certain offerings involving businesses and investors. The provisions under Regulation D are in place to protect investors but also to help startups and businesses looking to acquire investment capital. Regulation D offerings allow issuers and investors to complete transactions without being required to register securities, provided that all stipulations are met by both parties. Under the old Reg D, companies generally could not generally solicit their capital raise. The new Rule 506(c), however, lifted that ban, and now companies are actively using that new rule to raise money.

Rule 506 & General Solicitation

The allowing of general solicitation for private capital raises under Rule 506(c) is perhaps the most important recent development in securities law. Rule 506(c) outlines the basic requirements that companies must follow when conducting a Reg D “private” offering that also takes advantages of public solicitation and advertising (such as the use of advertisements, email blasts, and crowdfunding portals). Most importantly, Rule 506(c) requires that issuers take “reasonable steps” to verify that all of the investors in their generally solicited capital raise must be “accredited investors”.

Rule 501 & Accredited Investors

For many, the meaning of an accredited investor is somewhat foggy. However, the definition of “accredited investor” is quite clear. It’s actually defined by law in Rule 501 of Regulation D. An accredited investor could be a natural person, joint couple, corporation, charity, trust, benefit plan, business, insurance company, or many other types of entities. Typically, for an investor to be an “accredited investor”, they have to have a minimum income, net worth, or total asset count. Sometimes, an investor may be accredited due to his, her, or its relationship to the issuer. Rule 506(c) requires that the issuer takes “reasonable steps” to verify that an investor actually is an accredited investor. It’s a high liability task that’s best left to specialist in the area.

Don’t take a chance on failing to take “reasonable steps” to verify your investor. It’s just not worth it, especially when you can outsource that task quite easily and affordably. strictly follows SEC guidelines and provides legally compliant accredited investor verification services. To learn more, visit

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