What Is Regulation D for Raising Private Capital?

Regulation D relates to transactions exempted from registration requirements.

Specifically, it provides an exemption for transactions in which securities are offered or sold by the issuer, rather than an exemption for the securities themselves.

However, transactions utilizing Regulation D are not exempt from antifraud, civil liability, or other provisions of federal securities laws. Issuers must provide any further material information necessary to ensure that the required information is not misleading under the circumstances. Additionally, compliance with Regulation D does not remove the need to comply with applicable state laws regarding the offer and sale of securities, as Regulation D is designed as a basic element in a uniform system of federal-state limited offering exemptions.

Key operational rules regarding Regulation D include:

• It is available only to the issuer of the securities, not to any affiliate or other person conducting resales.
• It cannot be used for any transaction or chain of transactions that is part of a plan or scheme to evade registration provisions, even if there is technical compliance.
• Attempted compliance with any rule in Regulation D is not an exclusive election; you can simultaneously claim any other applicable exemption.

An accredited investor includes any person who falls into one of designated categories, or whom you reasonably believe falls into one of those categories, at the time of the sale of securities.

Designated categories include:

• Certain institutional entities such as banks, savings and loan associations, registered brokers or dealers, registered investment advisers, insurance companies, registered investment companies, business development companies, and licensed Small Business Investment Companies, acting in either an individual or fiduciary capacity.
• Entities not formed for the specific purpose of acquiring the offered securities that own investments exceeding $5,000,000.
• Entities where all equity owners are themselves accredited investors.
• Natural persons holding in good standing certain professional certifications, designations, or credentials from an accredited educational institution designated by the Commission.

For certain offerings, you must take reasonable steps to verify that purchasers are accredited investors. You are deemed to have taken reasonable steps if you use specific non-exclusive methods—such as reviewing IRS income-reporting forms for the two most recent years alongside a written representation of expected income, or reviewing specific documentation of net worth dated within the prior three months—provided you do not have knowledge to the contrary. Verification may also be satisfied through written representations or certifications under specific conditions for prior investors.