SEC Regulation D Explained: Key Exemptions, Rules & Benefits

SEC Regulation D Explained: Key Exemptions, Rules & Benefits

Key takeaways

• Regulation D (Reg D) provides SEC exemptions that let companies raise capital through private placements without registering securities with the SEC.
• Issuers must file Form D electronically after the first sale of securities.
• Rule 504 allows up to $10 million in a 12-month period; Rule 506 permits unlimited capital under certain conditions.
• Reg D does not remove antifraud liability or state securities law requirements.

What is Regulation D?

Regulation D is a set of SEC rules that create exemptions for private offerings of securities. It enables smaller or private companies to sell equity or debt without the full registration process required for public offerings, reducing time and cost while preserving investor protections.

How Reg D simplifies capital raising

Reg D lowers the regulatory burden compared with public offerings by requiring less disclosure and paperwork. That can speed fundraising and reduce legal and filing costs. Private offerings under Reg D can sometimes be openly marketed depending on the rule applied, but the securities offered still carry legal protections and are subject to antifraud rules.

Key requirements

• Form D: Issuers must file Form D electronically with the SEC after the first sale; Form D contains basic issuer and offering information and is less detailed than a registration statement.
• Bad-actor disclosures: Issuers must disclose prior disqualifying events (e.g., certain criminal convictions or regulatory sanctions) for relevant individuals.
• Federal and state law compliance: Reg D exemptions do not waive antifraud provisions or state securities laws; some states require notice filings and other disclosures.
• Investor sophistication and disclosure: If non-accredited investors participate, issuers typically must provide more extensive disclosures (including financial statements) and ensure those investors are sufficiently sophisticated to evaluate the investment.

Regulation D exemptions

Reg D includes several rules that define different exemption pathways:

Rule 504
* Allows sales of up to $10 million of securities in any 12-month period.
Issuers must file Form D within 15 days of the first sale.
Issuers remain subject to applicable state laws where securities are offered.
* Ineligible issuers include investment companies, Exchange Act reporting companies, issuers with no specific business plan, issuers planning an acquisition of an unidentified company, and those disqualified by “bad actor” rules.

Rule 505
* Rule 505 was repealed in 2016; many of its features were folded into Rule 504.

Rule 506
* Permits issuers to raise an unlimited amount of capital.
Under Rule 506(b), issuers may sell to an unlimited number of accredited investors and up to 35 non‑accredited investors, but any non‑accredited investor must be “sophisticated.” Issuers selling to non‑accredited investors face more stringent disclosure requirements.
Securities sold under Rule 506 are generally restricted and carry resale limitations.

Accredited investor — who qualifies?

An accredited investor is a person or entity permitted to purchase securities sold without SEC registration because they meet certain financial or professional criteria. Common benchmarks include:
* Net worth of $1 million or more (excluding primary residence); or
Individual income of at least $200,000 per year (or $300,000 combined with a spouse) for the two most recent years; or
Meeting specified professional or institutional criteria.

Restrictions and limits of Reg D

• The exemption benefits the transaction (the issuer’s ability to sell) — not the securities themselves or downstream resale by investors.
• Reg D does not exempt issuers from federal antifraud rules, civil liability, or applicable state securities laws.
• Some issuers or offerings may be disqualified by “bad-actor” provisions.

How Regulation D differs from Regulation A

Both Reg D and Regulation A reduce reporting requirements compared with a full public offering. Key differences:
* Reg D generally limits participation to accredited investors (except in limited circumstances), while Regulation A permits sales to non‑accredited investors with investment limits and tiered offering caps.
* Regulation A offerings are closer to public offerings in terms of disclosure and qualification requirements.

Conclusion

Regulation D offers practical, cost-effective pathways for private companies to raise capital without full SEC registration. Different rules under Reg D (notably Rules 504 and 506) provide flexibility in offering size and investor eligibility, but issuers must still meet Form D filing requirements, observe bad-actor and disclosure rules, and comply with federal antifraud provisions and applicable state laws.