Concerns About Form D Publicity and Alternatives for Early-Stage Companies and Investment Fund Sponsors by William Herrfeldt Jr.

To have a private offering, there are guidelines indicating who the investors can be, how much money can be raised, and a series of other parameters. Two of the most widely used pieces of legislation companies use to avoid unwanted excessive reporting requirements are Section 4(a)(2) and Rule 506 of Regulation D.

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Filing exemptions, SEC Regulation D, Securities Act of 1933

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What are the options to do a private offering?

  • Summary bullet points
  • SEC Rule 506(b) of Regulation D allows a company to raise an unlimited amount of funds from “accredited investors” in a private offering.
  • Under Regulation D, the SEC asks for some basic information about officers and company identification, the amount offered and raised, number of investors and a few other elements.
  • Companies need to fulfill state reporting requirements for each state where investors are located.
  • These filings are publicly available. There are reasons why some fundraisers might not want their capital raising efforts to be of public domain.
    • In these cases, the more general Section 4(a)(2) simply provides that private investors must be adequately equipped (through knowledge or wealth) to face the potential risks, have access to the proper company information, are not being solicited, and that their number is compatible with a non-public offering
    • Companies might still be subject to state reporting requirements under state law. However, many states do offer exemptions in cases with accredited investors and no paid solicitation
  • Companies can use Rule 506(b) in one investing round, but use Section 4(a)(2) in another.
  • Although these options are common, founders should evaluate other options with legal advice.
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