Stony Hill offers a unique service to help clients raise capital using Regulation D. Many clients may be unaware of their options and whether they qualify. Stony Hill introduces REG D and offers a free assessment to determine if it is a viable option for the client.
Is Reg D an option?
Yes, Regulation D (Reg D) is an option for small and medium-sized businesses (SMEs) to raise capital. Reg D is a set of rules established by the U.S. Securities and Exchange Commission (SEC) that allows companies to raise capital without registering their securities for public sale. It is advantageous for private companies as it involves meeting significantly less onerous requirements than a public offering, allowing them to save time and sell securities that they might not otherwise be able to issue in some cases. Reg D offerings are advantageous to smaller companies, and they provide a streamlined framework for businesses to raise capital from accredited investors without needing to register with the SEC. It allows companies to raise capital from accredited and some non-accredited investors, with reduced disclosure requirements and faster access to capital.
Can a Company self-Issue?
Yes, a private company can conduct a self-issue using Regulation D. Regulation D is a Securities and Exchange Commission (SEC)regulation that allows smaller companies to sell securities without registering with the SEC. It provides exemptions to the registration requirement, allowing private companies to raise capital through the sale of equity or debt securities without the need to register those securities with the SEC. Under Regulation D, Rule 506(b) or (c), enables issuers to issue an unlimited number of securities, and all accredited investors participating in a 506(b) or (c)private placement the company must take reasonable steps to verify their accredited status as accredited investors. Additionally, the company must file a Form D disclosure document with the SEC after the first securities are sold.
What is a Self-Issue?
Under Regulation D, self-issuance occurs when a company sells its securities directly to investors without involving an underwriter. When a company engages in a self-issuance under Regulation D, it must file a document called a Form D with the Securities and Exchange Commission (SEC) no later than 15 days after the first sale of the securities in the offering. Form D includes brief information about the issuer, its management and promoters, and the offering itself. This filing requirement is mandatory for all issuers relying on a Regulation D exemption, and failure to comply with this requirement may be a red flag. Form D contains less information than what is required for a public offering and includes the names and addresses of the company's executives and directors, as well as some details about the offering.
What’s the difference?
Rule 506(b) and Rule 506(c) are two different exemptions under Regulation D that allow private companies to raise capital without registering the securities with the Securities and Exchange Commission(SEC). The main difference between the two rules is related to the solicitation and advertising of the securities.
Rule 506(b): Under this rule, companies cannot generally solicit or advertise the securities to the public. However, they can raise an unlimited amount of capital and can have up to 35 non-accredited investors participate in the offering. The company must have a pre-existing relationship with the investors.
Rule 506(c): In contrast, under Rule 506(c), companies are allowed to generally solicit and advertise the securities to the public, but all investors must be accredited, and the company must take reasonable steps to verify their accredited status. This rule does not allow non-accredited investors to participate in the offering.
The key distinction between Rule 506(b) and Rule506(c) is that 506(b) does not allow general solicitation, while 506(c) permits it but only allows accredited investors to participate. The choice between the two rules depends on whether the company has pre-existing relationships with investors and whether it intends to solicit or advertise the offering to the public.
The advantages of using Regulation D (Reg D) for capital raising include:
1. Streamlined Process: Reg D streamlines the process for small companies to raise capital without the cumbersome and costly process of registering their securities with the SEC.
2. Access to Sophisticated Investors: It allows more sophisticated investors, such as venture capitalists and angel investors, to finance smaller companies.
3. Reduced Disclosure Requirements: Companies can benefit from reduced disclosure requirements, allowing for faster access to capital.
4. No Limits on Offering Sizes: There are no limits on the size of the offering, and companies can raise capital from accredited and some non-accredited investors.
5. Flexibility: Reg D offerings allow companies to raise capital for various purposes, such as real estate, business, or funds, without having to register the security with the SEC.
1. These advantages make Reg D an attractive option for small and medium-sized businesses looking to raise capital.
Types of Securities
Regulation D (Reg D) allows for the sale of various types of securities without the need to register with the Securities and Exchange Commission (SEC). Some of the securities that can be sold through Reg D include:
1. Common Equity Securities: Companies can raise capital by selling shares of their ownership, known as equity securities, to investors.
2. Preferred Equity Securities: Companies can raise capital and mitigate dilution at a future point in time by issuing preferred equity securities. Preferred shares are an asset class between common stocks and bonds, convertible preferred stock offerings are often viewed as a more desirable capital-raising option than common stock offerings because of the flexibility they provide in structuring the capital.
3. Debt Securities: This includes bonds, promissory notes, and other debt instruments that companies can issue to raise funds.
4. Asset-Backed Securities: Companies can also sell asset-backed securities, which are backed by a pool of assets such as loans, leases, or receivables.
5. Investment Contracts: Certain investment contracts or interests in a company can also be sold through Reg D offerings.
1. These are some of the common types of securities that can be sold under Regulation D, providing companies with flexibility in raising capital while avoiding the full registration process with the SEC.
The Securities & Exchange Commission.
The role of the Securities and Exchange Commission(SEC) in Regulation D (Reg D) offerings is to govern private placement exemptions. Reg D allows companies to raise capital through the sale of equity or debt securities without having to register those securities with the SEC. While companies are exempt from the full registration process, they are still required to file a Form D disclosure document with the SEC after the first securities are sold. This filing provides the SEC with information about the offering, but the requirements are less onerous than a full registration. Additionally, those selling securities under Regulation D must still comply with all applicable laws and regulations, and certain state and federal regulatory requirements still apply. Overall, the SEC's role in Reg D offerings is to provide a framework for companies to raise capital from private investors while ensuring that certain disclosure requirements are met.
Regulation D (Reg D) offering timeline.
Reg D offering can vary depending on the specific circumstances of the offering. However, in general, the timeline for a Reg D offering can be relatively short compared to a public offering, as it involves less extensive regulatory requirements. Companies can typically complete a Reg D offering within a few weeks to a few months, depending on factors such as the complexity of the offer and the time it takes to find suitable investors. It's important for companies to ensure that they comply with all the necessary regulatory requirements and that they provide any required disclosures to investors in a timely manner.
The typical duration of Regulation D (Reg D) offering can vary, but there are some general practices to consider. While a Reg D offering does not have a specific time limit for how long it can be open, the general practice is to keep the offering open for a period of several months to a year, depending on the company’s fundraising goals and investor interest. It is essential for the issuer to ensure that they continue to comply with all the requirements and regulations of the SEC throughout the duration of the offering. Additionally, the company must file Form D with the SEC within 15 days of the first sale. Overall, the duration of a Reg D offering depends on the specific circumstances of the offering and the goals of the company.
January 19, 2024