WHAT IS A “REG S” FOREIGN DIRECT PUBLIC OFFERING AND HOW CAN IT HELP RAISE CAPITAL FOR MY BUSINESS?
The Regulation S Offering (Reg. S) is an exemption designed by the SEC for companies seeking to raise capital from investors located OUTSIDE of the United States. Regulation S under the Securities Act of 1933, as amended (the “Securities Act”) is a safe harbour rule that defines when an offering of securities would be considered an “offshore transaction” so as not to be subject to the registration obligations imposed under Section 5 of the Securities Act.
CAN I SOLICIT CAPITAL FROM NON-U.S. INVESTORS THROUGH GENERAL ADVERTISING AND GENERAL SOLICITATION?
YES. Unlike the restrictions imposed by Regulation D, a U.S. company or any person acting on its behalf seeking to raise capital utilizing Regulation S exemption MAY:
• Offer or sell its securities using any form of “general solicitation” or “general advertising” as long as it is not directed into the U.S.
• Use foreign investor direct mailing lists
• Pay finders fees for referring non-U.S. investors (need not be “broker-dealers”)
• Place tombstone ads describing the offering in magazines and newspapers circulated in foreign countries so as long as the advertisement/solicitation are not directed into the U.S.
Although the use of the internet to raise capital in a private offering is still considered prohibited by the SEC, there are alternative ways to drive foreign (non-U.S.) investors to your company’s website without violating any rules.
CAN I CONDUCT A U.S. PRIVATE PLACEMENT AND A FOREIGN DIRECT OFFERING?
YES. Reg. S offerings are not integrated with Section 5 public offerings or Reg. D Private Placement Offerings. Reg D offering documents contain rules which apply to U.S. transactions. But Reg S offering documents contain rules which apply to foreign transactions only. Therefore, you can conduct simultaneous Private Placement Stock Offerings (Reg. D for U.S. investors) and a Foreign Direct Stock Offering (Reg. S for non-U.S. investors) without jeopardizing either exemption. Also, Reg S (non-U.S.) investors are treated the same way as accredited investors for the purpose of determining compliance with the 35 non-accredited investor limitation outlined in Reg D U.S. private placements.
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