Private Placement Provision - Regulation D Offerings

The most important transaction exemption for issuers is the private placement provision that exempts “transactions by an issuer not involving any public offering.” This means that, except for the new rule changes to Rule 506 described below, no general advertising or public solicitation of the deal is allowed.

Further, securities sold under a private placement are restricted securities and may be resold only by registration or in a transaction exempt from registration. The Securities and Exchange Commission must be notified of any private placement invoking the federal rules through the filing of a Form D. 

The following rules are common types of private placements:

• Rule 504. Rule 504 provides private, noninvestment company issuers with an exemption from registration for issues not exceeding $1 million within 12 months. The Rule permits sales to an unlimited number of investors. 
• Rule 505. Rule 505 exempts form registration those offerings by noninvestment company issuers that do not exceed $5 million over 12 months. The issue may be purchased by an unlimited number of accredited investors and by no more than 35 other purchasers. 
• Rule 506. Rule 506(b) establishes for all issuers a nonexclusive safe harbor for limited offers and sales without regard to the dollar amount of the offering. The issue may be purchased by an unlimited number of accredited investors and by no more than 35 non-accredited purchasers. Rule 506(b) does not allow any general advertising or public solicitation.
• Rule 506(c), effective September 23, 2013, allows issuers to use general solicitation to offer their securities. This new benefit comes with some additional duties for the issuer:
  • Purchasers must be limited to accredited investors;
  • The issuer must take reasonable steps as outlined in the Rule to verify that the purchasers of the securities are accredited investors;
  • The issuer must comply with new filing requirements, including new Form D requirements and submission of its advertising materials with proper legends to the SEC in advance of the solicitation;
  • The issuer must satisfy the other safe harbor requirements under Rule 506, including the new “bad actor” rules.
  • Section 4(6). Section 4(6) provides an exemption for offers and sales of $5 million made by an investor solely to accredited investors. The issuer must notify the SEC of sales made under the exemption and must take precautions against nonexempt, unregistered reseals. 

Contact a securities lawyer  at Murphy Desmond for assistance with all your business and securities legal matters.