The regulation pertains to private placement exemptions, which is when a company plans to raise capital by selling securities (debt or equity ownership) to investors, exclusive of a full registration statement with the SEC and without a full IPO.

Since a private placement is an exemption to a public offering’s general rules, there are great deals of disparate and complex rules applicable to private placements. While a Regulation D offering is one such exemption, several other types of exemptions can benefit small businesses and startups. The best thing about the Regulation D exemption process is that it saves a company significant time and money when filing a registration with the SEC.

What Does Regulation D 506 (C) Mean for Investors?

In case an accredited investor has an interest in private placements, he should have a fair understanding of Regulation D. The good news is that regulation D is not complex at all.

In the U.S., all securities must register with the SEC or file for an exemption. According to which securities are either unregistered or registered, the mandate is from the Securities Act of 1933. Likewise, it is common to come across the terms private market (unregistered) and public market (registered).

The exemptions that form the private market are in:

  • Rule 144A
  • Regulation A
  • Regulation D
  • Regulation S
  • Regulation Crowdfunding
  • Other section 4(a)(2) private offerings

A company can solicit and advertise the offering and still comply with the exemption’s requirements, under Rule 506(c), if:

  • The investors are all accredited investors.
  • The company takes all steps to check whether the investors are accredited. This process includes reviewing documentation, such as tax returns, W-2s, credit reports, and bank and brokerage statements.

There is no need for companies to register their offering of securities with the SEC if they follow the requirements of Rule 506 (b) or (c). However, they will have to file a ‘Form D’ electronically with the SEC once they sell their securities. You can view Form D as a brief notice that features the company’s promoters, directors, and executive officers’ addresses and names along with certain details about the offering. However, Form D does not contain any significant information about the company. Check the SEC’s EDGAR database for determining if the company has filed a Form D.

You must be an accredited investor to invest in a Regulation D, Rule 506(c) offering. However, 506(b) offerings can take up to 35 non-accredited investors who must have experience and prior knowledge about the investment type.

The idea behind this is that even the investors don’t have the net worth to become an accredited investor, they have the expertise and experience of evaluating the offering. Exemptions under 506(b) let companies depend on the investor’s statement regarding their accreditation status. However, 506(c) regulations do not permit this, and companies must have faith to validate the investor’s status. That implies the sponsor must review bank statements, tax returns, and some other documents to confirm that the investor is accredited.

Key Advantages of Regulation D 506(C)

The purpose of Reg D was to enable medium and small businesses to build capital without bearing the expenses and complications of reporting and filing. Since small businesses are the backbone of the U.S. economy market, the regulators intended to have a universal and streamlined procedure for maintaining consumer protection laws. Note that a company’s unregistered status does not exclude it from following federal and state securities law, SEC scrutiny, or civil liability.

Even in an exemption case, companies must file a Form D with the SEC. Private offerings are common, and as per SEC, they outpace public offerings.

The Extended Role of PPM

When a company conducts a Regulation D offering, it is critical to prepare a PPM or a private placement memorandum for investors to protect themselves from state regulators or SEC. The PPM is a legal document that specifies the terms of the investment for investors, with the description of the financial statements and a rundown of objectives/potential risks for investors.

No Waiting Period

You don’t have to wait for a 30-day waiting period. With 506(C), there are no roadblocks that previously made it complicated to acquire capital.

General Solicitation

Regulation D 506(C) lifted the prohibition of solicitation to the general public. Hence, private companies can now market their investment opportunities to anyone looking forward to investing.

Accredited Investors

This part of 506(C) helps your capital raising needs since it allows you to drop the tedious and expensive Private Placement Memorandum.

Verified and Sponsored Accreditation

The sponsor must verify the accreditation status of the investor in a 506(c) offering.

No Mandatory Document Disclosure

Document disclosure is not required.

eVest Technology Translates into More Syndicating Capital

eVest is the most comprehensive solution to address every segment of capital raising and investor management. The program serves as an ideal platform to offer clients a one-stop solution that converges digital technology with deregulation for replacing the antiquated Private Placement Market. The revolutionary platform has a model-day syndication industry.

Final Thoughts

By merging digital technology and current SEC exemptions with traditional capital raising needs, we present a robust software solution to eliminate any guesswork. Benefit from a complete step-by-step procedure to syndicate your next offering. Our team presents a robust platform that benefits from advanced technology for syndicating capital. Let us take care of all your needs, from digitizing the PPM to accreditation, dividend distribution, and reporting.


About the Author

Dan Summers

Dan is the Founder and CEO of eVest Technology

Dan is a 30+ year practitioner syndicating in excess of $2B and subsequently underwriting its own IPO. As such, he built along with his team of analysts and programmers a one-of-a-kind seamless and comprehensive platform than manages and organizes an entire capital raise. Summers has built a national reputation for integrity, transparency and approachability. Truly, one-of-a-kind.

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