A More Rapid Route for Raising Capital
By Brad Blazar
In attracting and raising capital for any business venture, an efficient path toward raising funds through the sale of equity or debt is crucial. This is especially true for entrepreneurs, operating businesses, and start-up companies, especially when they can avoid the restrictions and complexities associated with SEC registration.
Regulation D – commonly referred to as Reg D – is a legal exemption that offers this advantage. It allows securities to be sold to investors without undergoing a time-consuming SEC registration process or incurring the costs typically associated with publicly registered offerings.
A Cost-Effective and Efficient Way to Secure Capital
Raising capital through a Regulation D offering is often achieved via the Rule 506 (b) exemption or the closely related Reg D 506 (c) exemption. However, additional exemptions are detailed in Rule 501 through Rule 508.
In a Rule 506 securities offering, companies can raise capital from a significant number of accredited investors, with no cap on the total funds raised. The Rule 506 (c) offering exemption further permits businesses to promote and advertise securities offerings, as long as specific conditions are met. In both cases, an accredited investor is someone who meets established criteria for assets, professional accreditation, and income.
Another exemption, found in Rule 504, is known as a Small Corporate Offering Registration (SCOR). This allows private businesses to raise capital by selling stock over 12 months, with a fundraising limit of $1 million during that period.
Companies utilizing any of these Regulation D exemptions must inform the SEC by electronically filing Form D through the SEC’s EDGAR database. This form provides business details, including the types of securities on offer, minimum investment levels, expected commissions, investment objectives, and more. Additionally, individual states might have their own conditions and requirements, emphasizing the importance of expert guidance for compliance.
Sebastian H Amieva
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