Regulation D (Reg D) is a Securities and Exchange Commission (SEC) regulation governing private placement exemptions. It should not be confused with Federal Reserve Board Regulation D, which limits withdrawals from savings accounts. Reg D offerings are advantageous to private companies or entrepreneurs that meet the requirements because funding can be obtained faster and at a lower cost than with a public offering. It is usually used by smaller companies. The regulation allows capital to be raised through the sale of equity or debt securities without the need to register those securities with the SEC. However, many other state and federal regulatory requirements still apply. Regulation D lets companies doing specific types of private placements raise capital without needing to register the securities with the SEC.
The company or entrepreneur must file a Form D disclosure document with the SEC after the first securities are sold. Even if the Reg D transaction involves just one or two investors, the company or entrepreneur must still provide the proper framework and disclosure documentation. Those selling securities under Regulation D must still comply with all applicable laws. While Regulation D makes raising funds easier, buyers of these securities still enjoy the same legal protections as other investors. Raising capital through a Reg D investment involves meeting significantly less onerous requirements than a public offering. That allows companies to save time and sell securities that they might not otherwise be able to issue in some cases. The issuer of a security offered under Reg D must also provide written disclosures of any prior “bad actor” events, such as criminal convictions, within a reasonable time frame before the sale. Without this requirement, the company might be free to claim it was unaware of the checkered past of its employees.
