SEC Regulation D (Reg D): Definition, Requirements, Advantages

What Is SEC Regulation D (Reg D)?

Regulation D (Reg D) is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions. It should not be confused with Federal Reserve Board Regulation Dwhich limits withdrawals from savings accounts. Reg D offerings are advantageous to private companies or entrepreneurs that meet the requirements because funding can be obtained faster and at a lower cost than with a public offering. It is 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. However, many other state and federal regulatory requirements still apply.

Key Takeaways

  • Regulation D lets companies doing specific types of private placements raise capital without needing to register the securities with the SEC.
  • SEC Reg D should not be confused with Federal Reserve Board Regulation D, which limits withdrawals from savings accounts.
  • The company or entrepreneur must file a Form D disclosure document with the SEC after the first securities are sold.
  • Those selling securities under Regulation D must still comply with all applicable laws.

Understanding SEC Regulation D (Reg D)

Raising capital through a Reg D investment involves meeting significantly less onerous requirements than a public offering. That allows companies to save time and sell securities that they might not otherwise be able to issue in some cases.

While Regulation D makes raising funds easier, buyers of these securities still enjoy the same legal protections as other investors.

It is not necessary to keep Regulation D transactions a secret, even though they are private offerings. There are directives within the regulation that, depending on which rules are applied, may allow offerings to be openly solicited to prospective investors in a company’s network.

Requirements of SEC Regulation D

Even if the Reg D transaction involves just one or two investors, the company or entrepreneur must still provide the proper framework and disclosure documentation. A document known as Form D must be filed electronically with the SEC after the first securities are sold. Form D, however, contains far less information than the exhaustive documentation required for a public offering. The form requires the names and addresses of the company’s executives and directors. It also requires some essential details regarding the offering.

The issuer of a security offered under Reg D must also provide written disclosures of any prior “bad actor” eventssuch as criminal convictions, within a reasonable time frame before the sale. Without this requirement, the company might be free to claim it was unaware of the checkered past of its employees. In that case, it would be less accountable for any further “bad acts” they might commit in association with the Reg D offering.

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. 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 disclosure of any notices of sale to be filed. They may require the names of individuals who receive compensation in connection with the sale of securities.

Limitations of SEC Regulation D (Reg D)

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 who might later resell them. What is more, the regulatory exemptions offered under Reg D only apply to the transactions, not to the securities themselves.

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