WHAT IS A “REG D” PRIVATE PLACEMENT OFFERING AND HOW CAN IT HELP RAISE CAPITAL FOR MY BUSINESS?
The Regulation D Offering is an exemption designed by the SEC for private business. It is the most widely used program the SEC offers and provides the proper exemption needed to raise capital from investors. Not raising capital properly can provide investors with a “right of rescission” in the future – meaning they have the right to have their investment returned to them regardless of the circumstances. You could also face fines and other penalties resulting from an improper sale of securities to investors.
HOW CAN I SOLICIT CAPITAL FROM INVESTORS?
A US or foreign company that is seeking to raise capital utilizing Regulation D exemption or any person acting on its behalf MAY NOT offer or sell its securities by any form of “general solicitation” or “general advertising.” The use of mailing lists, unregulated referral sources (non-broker dealers), and other database providers can present problems to the company/issuer if they are not utilized and sourced properly.
To prevent the United States Securities and Exchange Commission (“SEC”) from deeming your solicitation to be a general solicitation, the following conditions are required:
• There be a “pre-existing” relationship between the company/issuer and the prospective investor prior to the solicitation; and
• At the time an investment is made, the company/issuer has knowledge regarding the sophistication or financial condition of the prospective investor
In order to fully comply with SEC Reg D rules, building your own investor database of “pre-existing” relationships with potential investors is the best way to present your offering to qualified investors.
Companies can also choose to utilize a Foreign Direct Stock Offering (Reg S) which would enable them to raise capital from foreign investors.
Learn more about Private Placement Offerings >>