Regulation D (Reg D)
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Regulation D (Reg D) is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D offerings are advantageous to private companies or entrepreneurs that meet the requirements, because funding can be faster to obtain, and less costly than with a public offering.
Usually used by smaller companies, the regulation allows capital to be raised through the sale of equity or debt securities without the need to register those securities with the SEC.
WHAT DOES a REG D COVER
According to the Securities Act of 1933, every company has to register their offering with the SEC in order to sell their shares. There are situations where the exemptions allow the companies to sell their shares without a SEC registration. One such exemption is Regulation D or Reg D.
Reg D provides three exemptions from the registration, Rule 504, Rule 505 and Rule 506. For purposes of online equity crowdfunding, Rule 506 is most significant, and it splits into two different variations: 506B and 506C.
In each case, only accredited investors are allowed to invest. Because Reg D 506C allows better access to offerings online by the public for viewing purposes, with a 506C offering, the company can raise an unlimited amount of capital, but only from accredited investors.
● It is allowed for the issuing companies to promote and advertise their offerings.
● The issuer companies have to take steps to verify that the investors are actually accredited.
● Although the companies don’t need to register with the SEC, they have to file a Form D, which includes information about the company’s offering, promotors, the companies themselves, and some further information about the offerings.
Copyright (c) 2019 Freschfield Corporation (“Freschfield”), All rights reserved. This communication is for information purposes only and should not be regarded as a recommendation of, or an offer to sell or as a solicitation of an offer to buy, any financial product. Investments are offered only via definitive transaction documents and any potential investor should read such documents carefully, including all of the risk factors relating to the investment, before investing. Startup investments involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest in startups. The most sensible investment strategy for startup investing may include a balanced portfolio of different startups. Startups should only be part of your overall investment portfolio.
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