Regulation D, Rule 506(b)

  • Regulation D was established by the SEC in the 1980’s to more specifically define a manner of privately offering securities.    Most companies issuing private securities do so by following one of the Rules within Regulation D.   
  • Rule 501 creates the “Accredited Investor” definition for investor eligibility for Rule 505 and Rule 506 Regulation D private placements.  Accredited Investors includes high net worth individual investors having incomes exceeding either $200,000/year (for single persons) or $300,000/year (married couples) or a net worth exceeding $1,000,000 (excluding the value of their principal residence).  There are other definitions under Rule 501 which designate qualifying institutions or investment companies.
  • According to the SEC: “It (Rule 506) is by far the most widely used Regulation D exemption, accounting for an estimated 90 to 95% of all Regulation D offerings and the overwhelming majority of capital raised in transactions under Regulation D.”
  • Rule 506(b) of Regulation D enables issuers to issue an unlimited amount of securities so long as no more than 35 non-accredited investors participate in the offering.
  • Investors participating in a 506(c) private placement must complete an Accredited Investor Questionnaire.
  • IMPORTANTLY – All accredited investors participating in a 506(c) private placement self-verify that they qualify as an Accredited Investor.  
  • Virtually any type of security can be offered to investors through a Regulation D private placement including promissory notes or equity interests (eg. common stock, preferred stock or membership interest in a Limited Liability Company).
  • Regulation D private placements are subject to all other federal and state regulations regarding misrepresentation or fraud.
  • Form D must be filed with the SEC and in each state the securities are sold under Regulation D within 15 days of the commencement of the offering.