Regulation D: What Is It?

Regulation D is the most common method that startups use to raise money from investors without being required to register with the SEC.  Using a Regulation D offering, businesses raise money faster by selling equity or debt securities while avoiding the complicated filing process and avoiding the cost of a public offering.

Regulation D contains three rules allowing exemption status:

  • Rule 504

    • “Seed capital” exemption: provides an exemption and sale of up to $1,000,000 of securities in a 12 month period. Check the IRS website to see if you qualify, but it is important to note investors may not be able to sell securities of a non-reporting company for at least a year without the issuer registering that transaction with the SEC.

  • Rule 505

    • Provides an exemption for sales of securities up to $5 million in any 12-month period to an unlimited number of “accredited investors” and up to 35 “unaccredited investors.” These securities may not sell for at least two years without registering the transaction.

  • Rule 506 - most common exemption accounting for 90% of offerings according to the SEC

    • Rule 506 Advantages

      • There is no limit to the amount of capital that can be raised

      • Company does not need to register at the state level or find any state exemption

      • If offerings are made only to accredited investors, the company will not be required to make the prescribed disclosures as the company will remain eligible for the exemption.

    • Rule 506(b): Private Fundraising

      • Company can raise capital without public advertising. This generally means that the company can only offer securities to buyers that the company already knows and believes to be accredited.

      • Can have an unlimited number of “accredited investors” and up to 35 “unaccredited investors”

    • Rule 506(c): Public Fundraising

      • Company can raise capital with public advertising as long as it takes  “reasonable” steps to ensure that it only accepts “accredited investors.”

      • The company does not need to have a prior relationship with the investors, but the company must verify that only “accredited investors” are participating.

Section 506(b) of Regulation D is the most commonly used exemption.  It provides a “safe harbor” for compliance with the Section 4(a)(2) exemption of the Securities Act.

Do Not Use Regulation D If:

Regulation D is meant for small companies with limited funding. It is not ideal for larger, more established businesses.

Consider Using Regulation D If:

  • You run a start-up company.

  • You wish to avoid registering numerous documents with the SEC.

  • You are a budding entrepreneur with a need for quick funding.

  • You want to avoid the hassle and expense of offering your company's securities to the public.

Deadline

A Form D must be filed within 15 calendar days after you close your first securities sale that qualifies for an exemption from typical filing requirements.

Frequently Asked Questions

  • How does Regulation D’s 506(c) differ from Regulation A?

    Investment funding through Regulation A is capped at $50 million. There is no limit for those filing under Regulation D's 506(c).

  • What are the filing fees for Regulation D?

    Filing fees vary from one state to the next, but in general, filers can expect to pay between $250 and $400 in filing fees.

  • What are the penalties for filing late?

    Filing late may not impact your eligibility for Regulation D, but many states require you to pay a fee if you file Form D after the deadline.

  • Will the information on Form D be available for public viewing?

    Yes, the SEC allows the public to view the information included in Form D.

Steps to File

  1. Get passwords and ID numbers.

    The SEC requires companies to file for Regulation D online. Filing takes place on the SEC's EDGAR system. This process requires a Filer ID Number (known as a “Central Index Key”) and password-like access codes. These are available through the SEC's Filer Management page online.

  2. Gather all information needed for filing.

    It is important to gather information with a paper version of Form D before you file online be ause you will only have one hour to complete the form after you log in.

  3. Submit Form D online.

    Log in at the SEC's Online Forms page using your Filer ID Number (also known as your “Central Index Key”) and your access codes. Under the "Make a Filing" option, select "Form D." Click "Submit" when finished with the online form. If you have any questions, contact filer support at: (202) 551-8900.

  4. Use a hard copy for state-based filing.

    Form D does not allow for online filing with your state. In addition to filing a hard copy with your state, you may need to pay a filing fee and/or sign a form showing that you agree to pay this fee.

    If you have any questions about Form D, ask one of UpCounsel's lawyers for help. The UpCounsel marketplace offers a diverse selection of the nation's best startup attorneys, who are eager to help you identify and execute the best fundraising approach for your business. The filing process can be complicated and confusing, but the experienced attorneys on UpCounsel can help you get through the process successfully.