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We came across someone doing same kind of business  in a much bigger way. After a detail discussion, I did the research and found the following facts. We have to grow and there are investors available, but it will be hard to find accredited. Our circle has many non-accredited investors. We are depending on you. We followed your directions. We are not that much concerned about our investors. They are reliable and in a worse situation we can pay them and get off the hook. But our major concern and hurdle is that we don’t want to be a victim of SEC. We need your advice and direction. How do we go from here. Are we not late in filing “D”. Our investors are currently from two states NY and NJ. Do we have to file D in each state and for each investor? Help us.
A Securities and Exchange Commission (SEC) regulation governing private placement exemptions. Reg D allows usually smaller companies to raise capital through the sale of equity or debt securities without having to register their securities with the SEC.
Reg D offerings are advantageous to any private company or entrepreneur because they allow an entity to obtain funding faster and to avoid the costs associated with a public offering.
Even if the transaction only involves one or two investors, the company or entrepreneur wanting to raise capital still needs to provide the proper framework and disclosure documentation; however, these requirements are significantly less than what is required for a public offering
A security representing a loan given by an investor to an issuer. In return for the loan, the issuer promises to pay interest and to repay the debt on a specified date.
An investor who does not meet the net worth requirements for an accredited investor under the Securities & Exchange Commission's Regulation D.
A non-accredited individual investor is one who has a net worth of less than $1 million (including spouse) and who earned less than $200,000 annually ($300,000 with spouse) in the last two years.
When a company raises private equity for an investment, such as a new company or a hedge fund, it is able to receive unlimited investments from accredited investors. On the other hand, Regulation D stipulates only 35 non-accredited investors are allowed to invest money into a private placement.
Regulation D Offerings
Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (or Reg D) contains three rules providing exemptions from the registration requirements, allowing some smaller companies to offer and sell their securities without having to register the securities with the SEC. For more information about these exemptions, read our publications on Rules 504, 505, and 506 of Regulation D.
While companies using a Reg D exemption do not have to register their securities and usually do not have to file reports with the SEC, they must file what’s known as a "Form D" after they first sell their securities. Form D is a brief notice that includes the names and addresses of the company’s executive officers and stock promoters, but contains little other information about the company.
Rule 506
As we discussed earlier, Rule 506 is a "safe harbor" for the private offering exemption. If your company satisfies the following standards, you can be assured that you are within the Section 4(2) exemption:
You can raise an unlimited amount of capital; You cannot use general solicitation or advertising to market the securities; You can sell securities to an unlimited number of accredited investors (the same group we identified in the Rule 505 discussion) and up to 35 other purchasers. Unlike Rule 505, all non-accredited investors, either alone or with a purchaser representative, must be sophisticated - that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment; It is up to you to decide what information you give to accredited investors, so long as it does not violate the antifraud prohibitions. But you must give non-accredited investors disclosure documents that generally are the same as those used in registered offerings. If you provide information to accredited investors, you must make this information available to the non-accredited investors as well; You must be available to answer questions by prospective purchasers; Financial statement requirements are the same as for Rule 505; and Purchasers receive "restricted" securities. Consequently, purchasers may not freely trade the securities in the secondary market after the offering.
E. Accredited Investor Exemption - Section 4(6) of the Securities Act exempts from registration offers and sales of securities to accredited investors when the total offering price is less than $5 million.
The definition of accredited investors is the same as that used in Regulation D. Like the exemptions in Rule 505 and 506, this exemption does not permit any form of advertising or public solicitation. There are no document delivery requirements. Of course, all transactions are subject to the antifraud provisions of the securities laws.
The two basic types of Regulation D offerings are:
- Equity Offerings: A company sells part ownership of their company to acquire capital.
- Debt Offerings: A company sells note instruments to investors with a maturity date and annual rate of return – much like a business loan
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