The completion of a Regulation D offering is complex and this article is not intended to provide a complete description nor any legal advice (disclosure: we are not lawyers and any legal advice should come from a securities attorney). We are a financial consulting firm specializing in assisting private companies go public by direct public offering. We have taken more companies public than most consulting firms and can prove our experience and success.
If you are already contemplating a private placement, it would be in your best interest to learn about and consider the benefits of a direct public offering. Benefits include: lower cost of capital, broader access to capital, faster time to raise capital and less dilution. There are no revenue, income, asset or other traditional requirements to go public, In fact, going public can help you achieve many milestones faster, easier and at less overall cost. Any legitimate company with the capital to cover the going public process can go public.
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Regulation D contains the rules describing how companies can raise investment without registering the securities being offered with the Securities and Exchange Commission. Most people refer to the Regulation D rules as the “private placement” rules.
There are three exemptions from securities registration within Regulation D:
> Rule 504.
This rule allows companies to raise up to $1 million as long as it is a legitimate business and is not already subject to SEC reporting requirements. General advertising is permitted as long as the offers are made only to accredited investors. However, many states have rules which effectively minimize or eliminate the opportunity to use Rule 504 to comply with their rules.
> Rule 505.
This rule allows companies to raise up to $5 million by offering stock for sale to accredited investors and up to 35 non-accredited investors. Sales must be made on a private basis and general solicitation is prohibited. Audited financial statements may be required depending on the offering.
> Rule 506.
This rule allows companies to raise an unlimited amount of capital by offering stock to accredited investors only. Non-accredited investors may not be offered and may not purchase shares in a Rule 506 offering. Contrary to common belief, a private placement memorandum is not required.
Additional details about Regulation D can be found here.
We assist private companies with private placements (typically Regulation D, Rule 506 offerings to accredited investors) as part of the process to go public. If you would like to speak to us about direct public offerings, initial public offerings or reverse mergers; please contact us at 516-509-8132.